Analysis: Stable EMS market and need to deploy cash is driving transaction activity

The global EMS market revenue is set to rise to 217 billion USD in 2012, up 4 per cent from 212 billion USD in 2011. The upgrade was prompted by surprisingly robust results from EMS industry leader Foxconn Electronics , driven in turn by increasing shipments to its largest customer, Apple Inc. However, beyond this development, there is little direction for the EMS industry. The forecasts among the brands vary widely, with most guiding lower. In other areas, the computing market is facing challenges as a whole due to lower growth. Meanwhile, pockets of strength exist in the infrastructure space for the industrial markets, but some areas such as medical devices have been difficult for many EMS providers. On the automotive front, formerly strong growth in China is starting to show signs of strain, with recent reports indicating high levels of dealer inventories despite continuing strong growth among luxury brands. In the United States and Europe, in comparison, car sales have been mixed and are highly dependent on specific models. Valuations of the EMS Peer Group maintained their level during the third quarter 2012 and levelled off at nearly 6.0x EBITDA, or 0.3x revenues. Markets deliver strong sings of stable growth across all indices . The MPCF EMS managed to outperformed the major indices during the last quarter. Raw material prices remained stable through the last 9 month. While aluminium am copper reported no significant changes, nickel and Tin experienced falling prices, before recovering slightly in September. The continued economic and credit market improvements, combined with the general market need to deploy cash, is driving international M&A reports. High level of M&A activity during the last months due to strategic investors who further consolidating the market or diversifying their service portfolio into adjacent areas (engineering, human interface solutions, mechatronic services). Largest transaction was the acquisition of DDI Corp. by Viasystems with a transaction value of 226 million euro. M&A activity is expected to remain on high level for the next quarter due to the continued drive of corporates and affirmative sentiment for realizing deferred strategic development actions.