The market sectors most sought by acquirers, in the 1995 to 2000 period, were:

1. Telecom, including mobile/wireless
2. Computer/peripheral
3. Consumer electronics

Since the dot-com bust in 2001, these markets have lost some of their appeal to acquirers. This is primarily because “small box” electronic products, common to these market sectors, are being manufactured in China by large contract electronic manufacturers (CEMs) on behalf of a few dominate, multi-national original design manufacturers (ODMs). These large CEMs and ODMs command sufficient volume to award large purchase orders to a small number of preferred suppliers and thereby demand, and receive, low prices from the supplier base. The continued drive for low component prices has made “small box” electronic products less profitable, and has made the telecom, computer/peripheral, and consumer electronics market sectors less attractive to acquirers.

The Small Box Rule

If the electronic product is contained within a cabinet (box) that is small enough to be carried by a person and is mass produced in large volumes, there is a high probability that the product will be manufactured in low-labor-cost countries. These manufacturers are removed from the majority of the user base, offer competitively priced products, and have large swings in demand.

Examples of small box electronic products include personal computers, printers, televisions, cell phones, routers, game players, computer monitors, radios, PDAs, and DVDs.

Component manufacturers currently in these markets are exploring acquisitions that will allow diversification into less-volatile and less-price-competitive market sectors. The favored acquisition is one that will produce parts for “large box” electronic products which are typically manufactured in Western countries and close to the majority of users. The large-box acquisition brings the benefits of decreased volatility in demand, less price competition, and improved utilization of existing manufacturing infrastructure that already exists in the West.

Component manufacturers not currently in small-box electronic markets shun acquisitions in these sectors for the same reasons.

The Large Box Rule

The definition of “large box” is an electronic product within a cabinet (box) that is too large for a person to carry. These items are typically produced in low- to medium-volume quantity, are likely produced near the end user, are less price-competitive, and experience moderate swings in demand.

Examples of large box products include automobiles, trucks, buses, construction equipment, off-road vehicles, recreation vehicles, boats, medical electronics, production equipment, industrial equipment, military and commercial aviation, tanks, and missiles.

The market sectors currently in favor for acquisition are transportation (non-auto), medical electronics, military/aerospace, commercial aviation, industrial, and oil/gas exploration. These businesses fall in close step with the large-box sales model, with local distribution, pricing, and demand.

The automotive market, still lucrative, has recently fallen out of favor as an acquisition strategy for a couple of reasons. High energy costs lead consumers away from large passenger cars, pickup trucks, and SUVs to more fuel efficient vehicles which use less electronic content. The poor state of the U.S. automotive market has also created a pause in acquisitions in this space.

Divest or Acquire

Bishop & Associates, Inc. has formed a partnership with Lincoln International, a global investment banking firm, to assist companies that wish to divest or acquire in the connector and cable assembly market sectors.

The Bishop/Lincoln team combines industry knowledge with global investment banking capabilities; increasing its clients’ probability of success on both the sell and buy side of transactions.

Bishop & Associates, Inc. provides:

• In-depth interconnect product and market expertise
• Knowledge of the most likely strategic buyers and sellers
• Relationships with most of the world’s connector companies
• Access to connector company decision-makers

Lincoln International provides:

• Full mergers and acquisition and related financing investment banking capabilities
• The ability to manage global transactions with success
• Relations with the most likely strategic financial buyers and sellers
• Access to leading firms in the private equity community