For several years the global industry of electronic-circuit production has been
in a mergers and acquisitions process, as big companies swallow up the smaller
companies that have not succeeded in taking off. Earlier this month it reached
us in Israel.
Since the collapse of the telecom sector in the crisis at
the beginning of the decade, mass production of printed circuits moved to the
East, beginning with Taiwan and later to China. Nokia, for example, in one year
buys circuits for 400 million telephones, and only giant factories in China,
under its tight quality control, are able to produce for it such giant
quantities at competitive prices.
The circuit makers that remain in the
West have been forced to abandon mass production in favor of more unique and
profitable smaller niches, in sectors such as industry, health-care and
primarily defense industries.
The latter, for secrecy reasons, don’t send
the East the sensitive work of producing circuits for fighter jets, missiles or
After circuit maker Cidav recently closed its doors due
to difficulties, there are only three significant circuit makers left in Israel,
who provide services for the defense and communications industries: PCB
Technologies Ltd., Eltek Ltd. (which I own in my portfolio tracked at Globes)
and Melta-Inter Industries Ltd.
subsidiary Melta Circuits Ltd.
the way, Israel has a much larger presence in machines that inspect and produce
the circuits themselves, including those of the giant producers in China,
through Orbotech Ltd., whose annual sales in this sector are double those of all
the circuit makers together.
Two weeks ago, the largest in the field,
PCB, bought the smallest, Melta. The two are located not far from each other in
Petah Tikva-based Eltek has annual sales of $35 million-
$40m., a break-even bottom line, and a market cap of only $8m. The controlling
shareholder of Eltek is gas and media tycoon Yosef Maiman, with a minority stake
of 24 percent, and the rest is held by the public. It seems logical to assume
that Maiman is also seeking a way out of this tiny investment; as a first step,
he left Eltek’s board this year and left his people there.
conversation with Maiman at the beginning of the year, he told me his ownership
position at Eltek had come about completely by chance. On a business trip to
Yugoslavia related to agricultural farms – before civil war broke out there – he
was asked to set up a printed-circuit facility there.
Maiman bought Eltek
here, with the goal of gradually transferring the machines and know-how to
Yugoslavia, but the civil war that started in the early 1990s sidetracked his
Instead of landing in Yugoslavia, Eltek listed on Nasdaq in
Since then, it has struggled to take off, even though it
underwent a business transformation – from a company that sold only to the
crashing telecommunications sector a decade ago, to unique niches
With two facilities, in Germany and in Petah Tikva, Eltek produces
primarily special rigid-flexible circuits for the medical and defense industries
here and overseas.
For example, it makes the tiny circuits for Given
Imaging Ltd.’s pill camera, or those that need to work in conditions of
tremendous heat and pressure inside various types of missiles for Israel’s
Despite the special technologies that Eltek has, and
even though this year it received special authorization to manufacture in Israel
for the US defense industry, its liquidity situation is “at the edge,” Maiman
said, and it does not have the funds to invest in equipment, which is necessary
for strong growth in the US market.
For Maiman, investing several million
dollars in Eltek through a rights offering or private placement is like a walk
in the park, similar to how Zohar Zisapel saved Radcom Ltd. in the latest
crisis, which today is worth more than 20 times than it was in the summer of
Since there are no signs that Eltek is going to raise money from
the owners anytime soon, I assume it is on the shelf to be sold. Investors who
have followed the trading in the shares in recent months can see there has been
a major accumulation.
In recent months, about 2 million Eltek shares have
changed hands, which is 30% of the company’s shares and more than 40% of its
float (not including shares held by Maiman and company managers). However, no
new party has reported that it has a holding above 5%.
Even though it is
tiny in its field, Eltek can definitely be an interesting target for US
companies in the circuit field: because of the uniqueness of its technologies;
because it is close to the Israeli defense industries, which are considered a
big target market for US manufacturers; and because it has a European presence
through a subsidiary in Germany.
In the US, the circuit sector is led by
TTM Technologies, with expected sales of $1.5 billion in 2011, after it closed a
giant acquisition in Hong Kong this year. Little Eltek probably does not
In contrast, the secondbiggest player in the field, DDi,
with expected sales of $300m. in 2011, built itself in recent years through
small acquisitions – but only in North America.
In my opinion, not too
much time will pass before we know why there has been such high turnover in
Eltek shares recently, and I assume the reason is not a huge business