SMTC Corporation Acquires MC Assembly Holdings, Inc.

SMTC Corporation (Nasdaq:SMTX), a global electronics manufacturing services provider, and MC Assembly Holdings, Inc. (“MC Assembly”), a leader in the contract electronics manufacturing industry, today announced that SMTC has acquired all outstanding shares of MC Assembly.

The purchase price at closing was $65 million, subject to certain adjustments. Additionally, the sellers are eligible to earn up to an additional $5 million of consideration, contingent upon the performance of MC Assembly for the twelve calendar months ending March 31, 2019.

“We are excited to announce the acquisition of MC Assembly which unites two highly complementary EMS companies. This accretive acquisition provides the opportunity to create significant value for our shareholders and offers strong benefits for customers of both companies,” said Ed Smith SMTC’s Chief Executive Officer, who will continue in that role 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.

Compelling Strategic Rationale

SMTC believes the acquisition will provide the following strategic and financial benefits:

• A stronger company with greater financial resources: In an industry where scale matters, the acquisition creates a powerful, diversified EMS provider with enhanced scale and new growth opportunities. The acquisition results in a combined company with consolidated results for the twelve months ended September 30, 2018 of approximately $323 million in revenue and approximately $18 million of Adjusted EBITDA. The consolidated results do not reflect the potential cost savings available from the combination of the two companies.
• Enhanced end market diversification: The combined company will benefit from an expanded presence in the growing and underpenetrated end-markets (including Aerospace & Defense, Industrial, and Medical). The acquisition will also strengthen the combined company’s presence in the attractive and growing Industrial IoT market.
• Stronger customer base with no significant customer overlap or customer concentration: The combined customer list is populated with a diversified breadth of industry-leading, top tier original equipment manufacturers (OEMs) across desirable end-markets.

• Complementary manufacturing footprint: SMTC believes macro-economic trends and Trade/Tariff environment are driving meaningful growth to North American-oriented EMS providers. The combined company provides customers with more than 50 manufacturing and assembly lines at strategically located facilities in the US and Mexico and existing capacity to support higher levels of revenue.
• Combination of relative strengths: Under the current SMTC management team, SMTC has demonstrated the ability to expand its customer base and increase revenue, despite industry reports of key component shortages, with year-over-year revenue up 56% in the most recently completed third quarter and up 34.5% for the first nine-months of 2018. SMTC believes this success is the result of strong customer relationship and best-in-market supply chain capabilities. SMTC’s management team further believes that MC Assembly brings expertise in lean manufacturing and MC Assembly’s Aerospace & Defense and Auto certifications allow the combined company to compete for highly complex and high value opportunities.
• Cost synergies: Management teams of both companies have worked collaboratively to identify $6 million+ of annual cost reduction opportunities from purchasing and operational advantages and corporate and shared services redundancies that the combined company expects to implement during 2019 at a non-recurring cost of approximately $3 million.

The combined company will operate under the name SMTC Corporation and currently plans to continue to operate and maintain the existing facilities operated by each company.

Transaction Financing

The proceeds of a new debt financing package, in combination with cash from SMTC’s balance sheet, funded the transaction and related fees and expenses. 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 LLC provided SMTC with a Senior Secured Loan Facility in the amount 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.