Catching Up With M&A Expert Tom Kastner

If you want to know what is going on in our industry when it comes to mergers and acquisitions, there is no better person to turn to than Tom Kastner. Whenever I hear a rumor of a company being bought or sold that I want to verify Tom is the first person I call and unless he is under a NDA he will fill be in. He is just about the most informed person when it comes to the subject of who is up who is down and who is for sale. This is why I like to check in with Tom every now and then to get his take on the industry. What follows is my latest talk with Tom. I hope you’ll enjoy it as much as I did.

Dan: It seems that there is a lot of activity going on right now when it comes to companies buying other companies. Is that real or just my perception?

Tom: There is definitely a lot of activity in the past 12 months. I count 10 deals in the PCB sector in the last 12 months, and there are at least 5 deals going on at present that I am aware of/working on. I am also working on several projects in the EMS/PCBA sector for buyers.

Dan: What types of sales are happening? Who is buying right now?

Tom: A few of the sales have been larger companies buying smaller ones, and there have been a few mergers such as KCA/Marcel (now called Summit Interconnect) and Dragon/Electro-Plate. Many of the buyers are larger companies that are private equity-backed or publicly traded, such as Advanced Circuits, FTG, APCT, OSI, etc. More than half of the recent deals have been consolidations (seller’s shop was merged into the buyer’s).

Dan: Who is selling at this time and why? What are the reasons people are selling at this particular time?

Tom: Most are selling in order to retire or to focus on other business. Several of the deals are due to under performance. Of the owners I speak with, most are interested in retiring, but some would like to find a buyer/investor who can take the company to the next level.

Dan: I’ve noticed that there have been several what I call “Roll ups” that have occurred since last we talked can you first of all explain to our readers what a roll up is and who gets involved in them and why?

Tom: Because many shops are running below capacity, the idea is that by combining two or more shops, the business will run more efficiently and profitably. Also, a larger shop may be more able to invest in new equipment and technologies. These deals can be tricky, and it requires at least one of the shops to close, and transferring customers may be difficult.

Dan: Who would you recommend a roll up deal to? Seller? Buyer?

Tom: It can be beneficial to both sellers and buyers. For the seller, the owner can retire, or perhaps focus on a role with the merged company that they enjoy the most, such as sales or operations. For the buyer, it can help fill a shop with more work, and it can bring new customers, products, people, reps, equipment, and technologies.

Dan: Are there any major trends that you are seeing out there?

Tom: Two major trends: customers are insisting more that shops invest in technology, such as direct imaging and laser drills. Also, foreign buyers would like a physical presence in the US.

Dan: And what do you think this means?

Tom: It will be increasingly difficult for smaller shops to keep up with larger shops that are investing in the newest technology. That being said, if they have survived this long, they probably have their costs down and have an interesting niche in the market. Regarding foreign buyers, we’ll probably see more foreign-owned shops in the US down the road. This may be part of their global strategy, and it allows them to make prototypes/quick turns in the US and volume production overseas.

Dan: What kind of deals have you been involved in since we last talked?

Tom: Since we last talked I closed the sale of Tech Circuits to APCT.

Dan: Without breaking any confidentialities what have you got on your plate at this time?

Tom: I am representing a $4.5 million PCB shop that is focused on mil-aero prototypes and quick turns, and I am representing a few buyers in the EMS space (1 in PCBA, 1 in wire-harness/assemblies).

Dan: I know that you have made some additions to your own firm since we last talked, can you tell us about those?

Tom: We added 3 people: 2 professionals and one assistant/researcher in the US. That brings us up to 5 total, 4 in the Chicago area and one in Tokyo. We are still focused on the electronics and tech fields, both sell-side and buy-side advisory services. We also offer grooming services, in which we help sellers get ready to go to market.

Dan: Sounds like you are prepping for the future. What do you think that is going to look like?

Tom: We are pretty busy already, but we think that baby boomer owners will be retiring in droves over the next few years. Also, there is a tremendous amount of strategic capital and private equity capital in the world that is seeking companies to buy, in a wide variety of sectors. I believe that the number of PCB and EMS shops will continue to drop, but the shops that remain and invest in equipment and technology will be stronger than ever.

Dan: Any final comments?

Tom: I am always glad to talk with owners or their advisors on how the M&A process works, potential buyers or sellers, valuations/terms, and how to prepare a business for sale.

Dan: Tom, it’s always a pleasure talking with you. Thanks for taking the time today.

Tom: My pleasure.

For more information about Tom and his company go to www.gp-ventures.com or you can reach Tom at tomk@gp-ventures.com. And if I may say so if you are ready to make a move and want to talk to someone about it there is no better person in our industry than Tom Kastner.

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