Celestica Inc. has entered into a definitive agreement to acquire PCI Limited for US$306 million in cash from Platinum Equity. Celestica designs, manufactures and supplies chain solutions to the world’s most innovative companies.

Singapore-based PCI is a fully integrated design, engineering and manufacturing solutions provider with five manufacturing and design facilities across Asia. PCI is expected to generate approximately US$325 million of annual revenue in 2021 with low double-digit adjusted EBITDA margins and strong cash flows.

With the addition of PCI, Celestica’s Advanced Technology Solutions (ATS) segment is expected to generate annual revenue in 2022 of approximately US$2.8 billion, with a segment margin of 5.5 percent.

Moreover, Celestica is raising its 2022 revenue outlook to US$6.3 billion from an initial target of US$6 billion. Its non-IFRS operating margin outlook is expected to increase to 4.0 to 5.0 percent.

Strengthens Customer Base

Celestica’s purchase of PCI further strengthens its approach towards engineering-focused engagements.  These include full product development in the areas of telematics, human machine interface (HMI), IoT and embedded systems. The transaction is set to add over 20 complementary, blue-chip customers to Celestica’s customer base. It will lead to multiple synergies, including commercial cross-selling opportunities between both companies, acceleration of engineering product offerings, and supply chain savings.

Rob Mionis, President and CEO of Celestica, said, “We are pleased to join forces with PCI, an engineering-led business that is aligned with our strategic objectives. This acquisition will help us further diversify our customer base and expand our ATS portfolio with high-growth programs. PCI is also expected to add strong annual revenue and cash flow generation that enhances our financial profile and outlook for 2022 and beyond.”

“We believe that today, Celestica is as strong as it has ever been – both operationally and financially. We are confident that PCI will help us build on our momentum and continue to generate significant value for all Celestica shareholders,” continued Mionis.

Leverage on Global Footprint

EL Teo, CEO of PCI, noted, “Celestica is an industry leader with complementary capabilities and a shared focus on engineering and innovation. We are excited to leverage Celestica’s global footprint and significant resources to rapidly expand our business, while bringing our new and differentiated engineering capabilities to their already impressive engineering team.”

The two intend to push the boundaries of innovation in the industry said Teo. They promise to deliver even stronger, more comprehensive solutions to its world-class customers.

Raises 2022 Outlook

The US$306 million transaction represents an adjusted EBITDA multiple of less than 7× (pre-anticipated synergies). The acquisition is expected to be accretive to non-IFRS adjusted earnings per share (EPS) in the first year. Returns are anticipated to exceed Celestica’s cost of capital by the second year, or sooner. As a result, Celestica is raising its outlook for 2022 non-IFRS adjusted EP growth compared to 2021 from 10 percent or more to 20 percent or more.

Celestica intends to finance the transaction with a combination of cash on hand and borrowings under its credit facility. Upon closing, it is anticipated that Celestica’s gross debt to non-IFRS TTM adjusted EBITDA ratio will increase to approximately 1.8× from 1.4× as of June 30, 2021.

The transaction is expected to close in mid-fourth quarter of 2021 subject to receipt of an applicable regulatory approval and satisfaction of other customary closing conditions.