Issue link: https://iconnect007.uberflip.com/i/1519075
12 PCB007 MAGAZINE I APRIL 2024 money brokering because they don't have the head- aches of CapEx or environ- mental regulations. ey are brokering domestically as well as importing boards, and many of them have gotten into assemblies as well. LaRont: You've said there's more activity on the assem- bly side rather than PCB fab- rication, but the profit mar- gins can be very thin, so why is that attractive? Kastner: Several factors keep the number of EMS companies high. I don't know the exact number, but I think there are between 700 and 900 companies in North America. One key thing is that customers like their EMS shops to be local. Ninety percent of that business is within 100 or 200 miles of the customer for lower-volume manufacturing. Higher volume, especially more commodity products, are still made overseas and imported. Customers like to be able to see their products, especially if there is an issue in production. Also, OEMs like the final touches to be done nearby in case there are any changes to the firmware, anything outside the box, what- ever it might be. at is more easily done when it's nearby. ere's also a much lower barrier to opening an EMS shop compared to a PCB fabrication shop. While it's still highly techni- cal, you don't have the "black magic" of chemi- cals and the "dirtiness" factor with all the envi- ronmental regulations. at is a major factor. Finally, air freighting a box build final assem- bly is getting more expensive; it's almost pro- hibitive. LaRont: Why would someone buy or sell at this time? Why is this even an attractive investment opportunity? Are private equity owners looking to provide a return on invest- ment for their investors? Kastner: e private equity guys see the trend toward reshoring, the government support in dollars, the nice military budgets, and a half- way decent economy for prod- ucts. e market may not be growing quickly, but it remains robust. ere is a lot of private equity money available over- all, and they are investing in everything, not just electron- ics. at is providing a tremen- dous amount of liquidity for people in our industry. Shawn DuBravac: e cost of cash is a lot higher than it was last year and is likely to stay higher. Investing in something like a lawn care business or consolidating dentists' offices into a group, for example—when your cost of cash is zero, and you think there are synergies in com- bining a number of them—doesn't translate as well today. e math doesn't work out. ere will be a much higher threshold for investors to find higher returns on that cash. Previously, they could immediately make 5%, risk-free, or market yields of 7–8% if they were willing to take some risk. Now, with the cost of cash, to make the investment worthwhile you will need to have deals returning in the 15% range. So, the consolidation we've seen from pri- vate equity from many industries will go away. ere are modernizations that can take place with larger companies, but not enough to drive the level of return that private equity is looking for. In certain instances, electronics starts to look more attractive when you don't have cash going to law firms and lawn care businesses. Still, I believe we will see this situation affect electronics. Kastner: It could be, but generally, the deals in electronics have not been very highly lev- eraged. Everyone recognizes that it is all proj- ect-based with no recurring revenue. It's not a soware-as-a-service (SaaS) revenue model, Tom Kastner