GP Ventures’ Tom Kastner on PCB Mergers and Acquisitions


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It’s always interesting talking with Tom Kastner, president of GP Ventures, because he has his finger on the pulse of our industry’s mergers and acquisitions (M&A) more than anyone. He knows which companies are selling, buying, or thinking about it. Most of the time, he is so buried in non-disclosure agreements (NDAs) that it’s difficult to get anything out of him. In this interview, Kastner provides insights on the right time to buy, how to evaluate your company’s worth, and when it is too late.

Dan Beaulieu: Tom, thanks for meeting with me today. First, can you tell us about GP Ventures?

Tom Kastner: My pleasure. GP Ventures is focused on M&A advisory services for tech and electronics companies. We have five employees total—four in Chicago and one in Tokyo. We work on both sell- and buy-side projects all over the United States as well as with overseas clients. I lived in Japan for nine years, which is partly why we have a Tokyo office. I started GPV 10 years ago after working in the M&A world for approximately 10 years.

Beaulieu: Do you mainly work with PCB shops and electronics manufacturing services (EMS) companies?

Kastner: Yes, my background is in PCBs and electronics, so I naturally had a connection with the industry. We work in other areas of technology too—such as software and equipment—but we primarily focus on PCBs and CMs.

Beaulieu: Do you think there is more M&A activity happening today?

Kastner: I agree, there is a ton of activity these days. 2017 was a little slow because we were wondering what would happen with taxes and tariffs with the new administration. In 2018, the economy is good, and military/defense budgets are strong, which helps M&A in the industry. Larger companies are doing well, and there is a lot of corporate and private equity money looking for deals. The effects of tariffs and re-shoring are still to be seen but should be positive. Many owners in the sector are at or nearing retirement age and are thinking of doing something with the business.

Beaulieu: Time for an example, Tom. Say I have a board shop that produces $5 million in revenue but has not been doing well lately. I have a decent team and equipment, I lease the building, and I make a total of $500K a year including my salary. What should I do?

Kastner: Selling to an interested buyer is probably better than closing the doors and liquidating. One issue with smaller PCB shops is that there are about 100 shops in the U.S. that have approximately $5 million in revenue or lower. Unless the owner has been investing in equipment and facilities, most buyers will want to consolidate the business into the buyer’s shop. Another issue is that most owners in this position are not at all prepared for a sale, which makes the process more difficult.

Beaulieu: If I decide to try to sell my company and hire you, what do you do and what will it cost?

Kastner: First, we gather information to understand the company and make sure we are on the same page as the owner regarding the estimated value and terms. Our firm puts together marketing materials, such as an executive summary and confidential presentation. We contact buyers, sign NDAs, negotiate initial offers, schedule meetings, negotiate letters of intent, and quarterback the deal through to closing. Cost depends on the size and scope of the deal, but we make most of our fees in the form of the success fee.

Beaulieu: Many people ask me what their company is worth. Is there a quick and easy way to determine that?

Kastner: Yes, everybody wants to know that. There are so many factors that go into a valuation that it is difficult to give an easy answer. In addition to value, the terms of a deal (cash at closing, seller note, escrow, earnout, etc.) are essential. In general, after about 15 minutes on the phone, we can provide a rough estimate on value and terms, but that can change after gathering more information and visiting the facility.

Beaulieu: What is EBITDA?

Kastner: That’s a good question because I find that many people think they know what it is, but don’t really. EBITDA stands for earnings before interest, tax, depreciation, and amortization; it is one way to measure the profitability of a company as if it had neutral ownership and capital structure. To complicate matters further, we usually use adjusted EBITDA. We make adjustments or addbacks to reflect what the company’s expenses will be after closing. For example, many owners pay themselves more or less than what a market replacement will cost, or there may be family members on the payroll who will leave after closing. Adjusted EBITDA is one measurement of company performance, but the value of the company can vary drastically depending on the multiple or on other factors that the buyer uses to make an offer.

Beaulieu: What about offshore companies buying in the U.S.?

Kastner: The Trump administration is taking a hard line on imports and offshore acquisitions. Offshore companies would like to be in the U.S. market because it is large and growing, and to avoid tariffs. Meanwhile, the government’s office that reviews acquisitions by foreign companies—the Committee on Foreign Investment in the United States (CFIUS)—has blocked several deals, although not yet in the board industry to my knowledge. Although I agree that the U.S. should be concerned about national security, I worry that CFIUS is going too far to block deals that would otherwise make sense.

Beaulieu: Yes, I have heard about that, but did not know the facts. Is it more difficult for a Chinese company to buy a U.S. company?

Kastner: China is a target for CFIUS. Also, if a Chinese company wants to buy a U.S. company that has a lot of defense work, they either have to divest the defense work or not buy the company.

Beaulieu: Is M&A activity as hot with EMS companies as it is with board shops?

Kastner: There is a lot of activity in the EMS sector, including PCBAs, wire harnesses, mechanical assemblies, etc. There are at least five times as many EMS companies in the U.S. than bare board shops; thus, there will usually be more activity in the EMS sector. In general, there are fewer environmental and capital expenditure issues in the EMS sector, which makes completing deals a little easier.

Beaulieu: Is there anything you’d like to add before we finish?

Kastner: Owners should always be prepared for a sale because you never know when an interested buyer or representative will call. Getting a company off the ground and running it for 20 years is infinitely harder than getting organized, so there is no excuse for not being ready.

Beaulieu: Thanks again for your time, Tom. We should catch up again next year.

Kastner: It’s a date.

Dan Beaulieu is president of D.B. Management Group. To read past columns or contact Beaulieu, click here.

Tom Kastner is the president of GP Ventures, an M&A advisory services firm focused on the tech and electronics industries. He is a registered representative of StillPoint Capital, LLC—a Tampa, Florida member of FINRA and SIPC—and securities transactions are conducted through it. StillPoint Capital is not affiliated with GP Ventures. To read past columns or contact Kastner, click here.

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