PCB/PCBA M&A Top 10 FAQs(Part one)

We talk with owners a lot about the possible sale of their businesses. Here are the top 10 questions asked by PCB/PCBA shop owners about the process:

1) What is the value of my business?

For companies in the PCB/PCBA sector, companies generally sell in the 4−6 times adjusted EBITDA range. Some companies sell for less if they are not profitable or have not been investing/growing; some will sell for more if they are growing rapidly or have something special. Shops at the low range may sell for slightly above liquidation value (net current assets plus fair market value of equipment), which is a major reason why many small shops do not sell. A lot of different factors go into a valuation, and the terms can vary widely as well. The terms generally consist of cash, seller’s note, earn-out, carryover equity, consulting fees/salary, etc. Most deals are completed on a cash-free, debt-free basis as a purchase of assets. Buildings/real estate are usually handled separately.

Most asked follow-up question: What is adjusted EBITDA? EBITDA is earnings before interest, taxes, depreciation and amortization. Adjustments often include normalizing owner’s compensation, adding back personal expenses, adjusting rent if the owner also owns the building, etc. It is also called Seller’s Discretionary Earnings in some cases.

2) How long does it take to sell?

The sell-side process usually takes 9−12 months from the time an intermediary is signed up. It can be shorter if a strong buyer appears early in the process; it can take much longer if the business starts to decline or if there are major issues that come up during due diligence. In the case when a strong, well-financed unsolicited buyer approaches a seller, a deal can take less time, if both parties move quickly and no issues come up.

3) Who are the likely buyers for my business?

Likely buyers are strategic companies in the same or related industry, private equity firms (either as platform or add-on acquisitions), and individuals. Strategic buyers often offer the highest valuation, but they may want to close down the shop or otherwise change the legacy.   The best buyers are sometimes strategic buyers who are not the most obvious fit. Private equity firms are fairly prominent in both the PCB and PCBA sectors. They’ll typically look for at least $1 million of EBITDA for a platform acquisition, but will acquire smaller companies as add-ons. Individual buyers are rare for shops with over $10 million of revenue, but common for the $5 million and less level. Foreign buyers are very interested in the U.S. market, although many of them are cautious about having too much military or government business. We always say, “The best buyer might be just down the street, or may be on the other side of the world.”

4) I want to keep it quiet; why should I contact more than 1-2 buyers? 

It is best to have a few buyers competing for the business. Not only does this keep buyers honest, but it provides a few backups in case something happens with the primary buyer. The need for confidentiality must be weighed against the extra millions of dollars that competition may bring. That being said, sometimes a well-financed unsolicited buyer is a great buyer. If a buyer is out looking for companies to buy, they have a strategic need to do deals. An owner should be ready to respond quickly if the right buyer comes around.

5) How do we maintain confidentiality?

Intermediaries typically use a blind executive summary to contact buyers, which includes enough information to attract buyers but not enough to allow them to guess who the seller is. NDAs are signed with buyers who express an interest, and the NDA should be reviewed by the seller’s attorney prior to going to market.