Plexus to Buy SeaMED for $70 Million

Contract electronics manufacturer Plexus Corp. (Neenah, WI) has agreed to pay about $70 million in stock for SeaMED Corp., which builds instrumentation products and provides engineering services primarily for the medical market. The deal will increase Plexus' medical business to about 33% of total revenue, from 24%, said Tom Sabol, CFO of Plexus.

"We think outsourcing is just beginning in the medical markets, and there are tremendous opportunities for growth," Sabol said. "There are barriers to entry in the medical market that make it attractive for a company like Plexus, which already has strengths in that area."

Indeed, medical companies have been slow to move to the outsourced-manufacturing model, due to strict regulatory requirements. But observers noted that several factors are now driving an outsourcing trend in this market.

Due to intense pressures in all segments of the healthcare industry, cost-containment issues in hospitals and other medical institutions are forcing manufacturers to decrease equipment costs. Also, manufacturers are finding it necessary to put electronic components into equipment that previously was mechanical or electromechanical, and many don't have the resources to cope with the transition.

In response to this demand, a small but growing number of contract electronics manufacturers are obtaining the necessary certification to serve the medical market.

"We definitely have noticed that contract manufacturers are becoming more niche-oriented-this is especially true in the medical and automotive markets," said Bill Goebes, vice president of sales and strategic customer marketing for Arrow Electronics Inc.'s Contract Manufacturing Services Distribution Group, Melville, NY.

The SeaMED acquisition will give Plexus immediate access to high-profile customers, such as Johnson & Johnson, as well as specialized manufacturing and engineering services. SeaMED has FDA Class III medical manufacturing approval, the highest level of certification, allowing it to build life-sustaining and invasive medical products. Plexus currently is limited to Class I and Class II medical manufacturing.

Nearly all of SeaMED's business includes box-build, or system assembly. This will strengthen Plexus' box-build efforts, which currently account for about 25% of its revenue, Sabol said.

Plexus' revenue, which had been growing in the double-digit range for years, slowed to about 6% in its most recent quarter. Analysts expect the medical push to reinvigorate the company.

For SeaMED, which had remained independent for 22 years, the acquisition will create "a powerhouse in contract engineering and manufacturing for both commercial and medical technology ... [and] provide a stronger financial and operational foundation to offer our expertise to a wider range of customers, and for increasingly larger and more complex projects," said Bob Berg, president and chief executive of the Redmond, WA-based company.

To complete the merger, each outstanding share of SeaMED stock will be converted into 40% of one share of Plexus stock. SeaMED will then become a wholly owned subsidiary of Plexus.

Subject to shareholder and government approvals, the merger is expected to be completed in June or July.