CHICAGO – EMS M&A activity saw a slight year-over-year increase in the first quarter, with 10 transactions recorded in Lincoln International's latest industry report.

Nine transactions were recorded in the first quarter of 2022, and 12 were recorded in the fourth quarter.

Consolidations accounted for six transactions in this year's first quarter, which represents a slight decrease in the number of EMS consolidations compared to Q4 2022. Three vertical/horizontal convergence transactions and one diversification into EMS acquisition were also recorded. OEM divestitures and private equity investment transactions did not account for any transactions in the quarter, nor were there any transactions categorized as EMS divestitures, Lincoln said.

Three of the transactions completed in quarter occurred in the US/Canada, while four transactions were completed in Europe. There were also two transactions in Asia and one cross-border transaction.

In terms of size, small-tier EMS providers accounted for 70% of the transaction volume with seven acquisitions. Mid-tier providers accounted for two acquisitions and large-tier providers made up one of the recorded transactions.

Given the continued macroeconomic challenges of inflation and rising interest rates, deal activity, specifically with private equity investments, has been impacted in the EMS sector, but overall transaction momentum remains relatively consistent in terms of volumes and is in line with typical first-quarter activity from prior years, Lincoln said.

The firm said there has also been a stronger push from EMS consolidations driven by industry tailwinds, such as the increasing demand for smart devices, wearable technology and the growth of automotive chip demand, including power control, artificial intelligence (AI) functions and the Internet of Vehicles. Lincoln expects those trends will be further elevated by emerging technological potential such as 5G and IoT, and will continue to drive EMS transaction activity and electronics content through consolidations and vertical/horizontal convergences in 2023.

While there are continued challenges related to moving through increased inventory levels as component shortages are finally starting to ease, Lincoln said it is starting to see improvement in inventory turns, which will result in improved cash cycles moving forward.

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