IEC Electronics set for takeover as it builds solid exclusively 'US made' manufacturing niche

Agreed merger with Creation Technologies Inc in August 2021 Provides electronic-manufacturing services to the aerospace, defense, industrial, and medical sectors Manufactures 100% of its products in the US, unlike many of its competitors What IEC Electronics does: IEC Electronics Inc (NASDAQ:IEC), which has agreed to a takeover by Creation Technologies Inc, is a provider of electronic manufacturing services to advanced technology companies that produce life-saving and mission-critical products in the aerospace, defense, industrial, and medical sectors.  Founded in 1966, the Newark, New York-based company breaks its business down into six key areas: full-system assemblies, design & test development, analysis & testing lab, electronics manufacturing, interconnect solutions, and precision metalworking.  The company specializes in delivering technical solutions via the custom manufacture of complex full-system assemblies (such as circuit boards) and by providing on-site analytical testing laboratories, custom-design, and test-engineering services.  IEC manufactures 100% of its products in the US, unlike many of its competitors. For the medical industry, the company's products include infusion pumps, resuscitation and imaging systems, and diagnostic equipment. IEC's BioWaveHome Neuromodulation Pain Therapy System helps manage pain through electrical stimulus. The Veterans Administration and the National Football League have expressed interest in the product which is seen as a viable alternative to using highly addictive opioid drugs to treat pain.  It also makes ruggedized industrial controls, remote-inspection equipment, and weather-detection instruments for the industrial sector.  In the aerospace and defense areas, the company produces encrypted satellite communication, weapons, and flight-control systems as well as handheld tactical radios for US troops in war zones.  How is it doing: On August 12, 2021, IEC Electronics announced the signing of a definitive merger agreement with Creation Technologies that will see the latter acquire all outstanding shares of IEC.  Creation has agreed to pay $15.35 per share in cash, which represents a fully diluted equity value of approximately $173.8 million and an aggregate enterprise value of $242.3 million, based upon net debt of $68.6 million. The amalgamation has received unanimous approval by both boards of directors.  The merger will combine IEC’s high-complexity, low-to-medium volume electronic manufacturing services focused on high-reliability applications within the aerospace and defense, medical and industrial end markets; with Creation’s focus on medium volume, high-reliability customers in the same segments.   Together the new entity will have more than 4,000 employees in facilities located across North America and China. The transaction is expected to close by early October 2021. Upon completion of the deal, IEC will become a privately-held company and its common shares will no longer be listed on any public market. On the same day, IEC also released its fiscal 3Q results for the period ended July 2, 2021. The company reported revenues of $49.4 million for the ficsal third quarter, up 4.2% compared to revenues of $47.4 million for the same quarter a year earlier.    Year-over-year gross profits fell mildly, coming in at $5.2 million, or 10.6% of sales, compared to $6.6 million, or 14.0% of sales in 2020.  The 3Q also brought in an operating profit of $1.9 million.   Total reported revenue for the first nine months of the company’s fiscal 2021, topped $142.2 million, a 4.4% uptick than the same time frame a year ago.   In July 2021, IEC had announced the award of a multi-year contract, valued in excess of $45 million, from a Tier 2 Department of Defense contractor.  The award is a follow-on order extending IEC’s participation with a program it has supported for several years. In 2019 the contractor awarded IEC the entire outsourcing of this program associated with secured communications equipment for US aircraft, ground vehicles, and surface warships. IEC also said it had entered into an agreement to purchase an 86,000 square-foot facility in Rochester, New York state. The new facility is expected to provide additional capacity and more importantly, access to a larger pool of qualified resources to support future organic growth.  Inflection points: Completion of takeover by Creation Technologies Further top-line revenue growth What the boss says: Announcing the company's merger with CreationTechnologies on August 12, IEC president and CEO, Jeffrey T Schlarbaum said: “IEC is excited about joining the Creation family. The transaction presents our stakeholders with immediate value while providing our customers a broader platform for continued growth,” “[The] combination of IEC and Creation creates a leading medium volume, high-reliability electronics manufacturer with a customer service driven culture,” said Stephen P DeFalco, Chairman and CEO of Creation. “Furthermore, IEC and Creation’s complementary geographic footprints create a premier full-service North American supply chain for both companies’ customers.” Commenting on IEC's Q3 results, Schlarbaum added. “During the fiscal quarter we continued to ramp multiple exciting new programs. As we noted last fiscal quarter, given the complexity of the programs we service, the ramping process is not linear and frequently includes process development adaptations which continue to impact profitability.”  He concluded: “Our 100% US-based model positions IEC as the ideal partner for companies seeking the highest levels of intellectual property protection and supply chain management. We are pleased to have made solid progress throughout this challenging year to advance our leadership position and we are excited about the opportunities we are seeing to win new customers and programs as we move toward delivering an expected strong close to fiscal 2021.” Contact the author: jon.hopkins@proactiveinvestors.com