It’s still not clear whether the economic recovery, such as it is, is going to gain strength or slide into a new downturn. But companies that stake out a dominant position in key market niches can prosper in any environment.

Consider Orbotech Ltd. (NASDAQ: ORBK), a little-known Israeli company that has been at the cutting edge of the electronics industry supply chain since it was founded in the mid-1980s. It’s an innovator that produces semiconductors and other technologies used in the manufacture of some of the world’s most sophisticated consumer and industrial products.

The company produces key components of circuit boards, flat panel displays and other gadgets. Today, virtually every electronic device is produced using some sort of Orbotech technology.

Despite its record of innovation, the firm’s price-earnings ratio is only around 20. For a fast-growing tech company of this quality, that’s a bargain. ORBK’s market cap is fast approaching $900 million, a 30% increase from just two years ago. Orbotech has shown consistent increases in revenues on a year-over-year basis.

The company also applies its expertise and resources in other advanced technology areas, including character recognition for check processing for many of the world’s leading banks.

Headquartered in Israel and operating from multiple locations internationally, Orbotech’s highly talented and inter-disciplinary professionals design, manufacture, sell and service the company’s end-to-end portfolio of solutions to customers the world over.

Orbotech announced that it will be acquiring SPTS Technologies Group, a British manufacturer of thermal processing equipment for the microelectronics industry, from European private equity firm Bridgepoint and others. The combined companies’ comprehensive offering is expected to enable the leading designers of consumer electronics to turn their vision of next generation devices into reality.

SPTS offers a large range of systems that have set new standards in the high growth Advanced Packaging and MEMS (micro-electro-mechanical systems) markets. Through this acquisition, Orbotech expects to accelerate the execution of its growth and diversification strategy, and is moving up the electronics value chain.

The combination should expand Orbotech’s presence in Europe and North America and provide SPTS with a greater reach throughout the Pacific region, particularly in China.

“Orbotech identified Advanced Packaging as a strategic and natural extension of its business into an adjacent high growth market, where SPTS is a recognized technology leader. SPTS benefits from established, long-standing partnerships with major industry players. It is a well-known and highly respected brand with deep domain expertise in those segments in which it operates. Acquiring SPTS allows us to accelerate the expansion into Advanced Packaging, with multiple manufacturing solutions ideally suited for this growing segment”, said Asher Levy, CEO of Orbotech.

“Orbotech and SPTS are complementary in many ways. By combining the extensive know-how and core assets of both companies we will continue to enhance Orbotech’s portfolio and industry leadership while focusing our efforts on driving profitable growth.”

Kevin Crofton, President of SPTS, said: “This is an exceptional opportunity to bring together two proven leaders both operating at the cutting-edge of consumer electronics manufacturing.”

Orbotech had been locked in an odd dispute with one of its shareholders, Ion Asset Management Ltd., having to do with the transparency with which Orbotech is run. But the two companies reached an agreement to allow its shareholders to consider a proposal to declassify the Orbotech board of directors. The Orbotech Board and Ion have each agreed to support this declassification proposal.

Orbotech has also agreed to review its capital allocation policy and make public any revisions to that policy.

Yochai Richter, Chairman of the Orbotech Board of Directors, said: “Orbotech is always open to addressing shareholder concerns and is committed to creating value for all of its shareholders. Orbotech and its shareholders have engaged in fruitful discussions related to the Company’s strategic vision for continued value creation, and we believe this agreement will allow us to focus on improving our already strong position in the marketplace.”

The stock could be somewhat volatile in the short run, given the inevitable uncertainties of the market. But for long-term growth prospects, you’d be hard-pressed to find a better small-cap tech stock than ORBK. 

Tom Scarlett is an investment analyst at Personal Finance.