TORONTO -- SMTC shook up the electronics manufacturing services industry today, announcing its acquisition of MC Assembly. SMTC paid $65 million for the privately held MC Assembly, subject to certain adjustments.

MC Assembly shareholders could earn up $5 million more, contingent upon the performance of the business for the 12 calendar months ending Mar. 31, 2019.

The combined company had consolidated results for the 12 months ended Sept. 30 of approximately $323 million, and approximately $18 million of adjusted EBITDA. SMTC expects the acquisition to be immediately accretive. The consolidated results do not reflect the potential cost savings available from the combination of the two companies, which are pegged at more than $6 million annually.

SMTC paid for the acquisition through a combination of cash and new credit. SMTC secured a new $45 million asset based revolving line facility from PNC Bank, of which $22 million was drawn at closing. Additionally, TCW Direct Lending provided SMTC with a senior secured loan facility of $67 million, of which $62 million was drawn at closing, with $5 million available on a delayed draw basis. At closing, SMTC’s existing bank indebtedness of $27 million was repaid.

“We are excited to announce the acquisition of MC Assembly which unites two highly complementary EMS companies>," said Ed Smith, chief executive, SMTC. "This accretive acquisition provides the opportunity to create significant value for our shareholders and offers strong benefits for customers of both companies." Smith will remain CEO of the combined company. “SMTC and MC Assembly have a common mission, which is to build a world class EMS company that puts customers first. We intend to build upon our respective strengths to drive growth and efficiencies at our facilities from our complementary and diversified customer bases,” stated MC Assembly’s President and Chief Executive Officer George Moore.

The deal comes as a surprise because SMTC is not only the smaller company, but it also is in a turnaround mode. Company revenues plunged from $239 million in 2014 to $139 million last year. Year-over-year revenue was up 56% in the third quarter, however, and is up 35% to $120.2 million for the first nine months of 2018. MC Assembly reports annual sales of about $200 million.

SMTC said the merged entity will benefit from greater end-market diversification, including an expanded presence in aerospace & defense, industrial, and medical, plus industrial IoT. They claim a stronger customer base with no significant customer overlap or customer concentration. Moreover, SMTC believes macro-economic trends and trade/tariff environment are driving "meaningful growth" to North American-oriented EMS providers.

Between them, SMTC and MC Assembly have plants in California, Massachusetts, Toronto, Mexico and China, with more than 50 manufacturing and assembly lines. The combined company will operate under the SMTC name and currently plans to continue to operate and maintain all existing facilities.

The merged company, while considerably larger in terms of revenue, would remain well outside the lower end of the world's largest EMS companies, according to the CIRCUITS ASSEMBLY Top 50. The minimum annual revenue to make the rankings is well above $400 million.

• Prev
• Next