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Photonics Industry M&A Activity

Premium Priced Strategic Acquisitions

Despite persistent financial and geopolitical risk, M&A activity for 2015 in the photonics industry and vertical markets employing photonics technologies as core differentiators continues to rise.  Having been through a long period of organic growth, strategic buyers turn to M&A to keep growing - creating more competition for financial buyers and improving valuations.

Middle market companies employing photonics to serve a wide breadth of markets, such as Display for Information Technology, Medical Imaging, Medical Therapeutics, LED Lighting, and Sensor Networks (Internet of Things), are realizing high valuations.

So far this year and unlike last year, a handful of Asia and Europe based middle market companies realizing premium valuations from strategic buyers are driving-up average Enterprise Value/Revenues multiples. 

Leading the pack are: Irico Display Devices Company, a supplier of LCD modules, OLED's and raw materials (62x); CellCura, a provider of imaging tools to track embryos through the in-vitro process (24x); Theraclion, a company offering high-intensity focused ultrasound therapy for non-invasive treatment of benign tumors (23x); San'an Optoelectronics, a supplier of LED epitaxial chips and high-power concentrating solar products (12x); and Accupix, a multimedia device company developing 3D video glasses and microdisplays (10x).

The Transactions

M&A transactions are researched with closing or announce dates from January 1 to June 30, 2015.  Transactions volumes, values, geographies, and market segments are analyzed. Values are in $US at historical rates of exchange. Follow this link to transaction detail.  <First Six Months 2015 Photonics M&A Transactions>

 

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Activity

The Display and Imaging segments in Information Technology, LED Packages & Luminaires, and Materials & Coatings segments saw the most activity in volume of transactions.

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In the first six months of 2015, the total and average Enterprise Value of the 240 transactions reporting financial data were $204 billion and $880 million - compared to $190 billion and $462 million in all of 2014 respectively.

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Photonics Core Technology Companies

Unprecedented in the five years prior to 2014, the Photonics sector again saw about as much activity in the volume of transactions as the market sectors it enables.

By far, the largest acquisition of core photonics technology announced was the acquisition of OmniVision Technologies (CA), a provider of semiconductor image-sensor devices with integrated wafer-level optics used in various consumer and commercial mass-market applications for $1.8 billion.  OmniVision was acquired was sold by US private equity firms to three China and Hong Kong based private equity firms.

Recent advances in commercially available materials and their related photonics technologies are driving innovation in lighting, life sciences, IT, energy, and construction.  2015 sees suppliers of fundamental materials such as rare earths, organic LED materials, dielectric optical coatings, semiconductors, nanoparticles, sapphire, and display glasses being acquired.

Small and Middle Market

47% of researched transactions disclosed the transaction value. Of those disclosed and consistent with previous four years, 78% are small market (<$5M), micro middle market ($5 to $25M), and small/middle market ($25 to $100M) transactions.

Since 2010, the lower and middle of the M&A middle markets remain robust. These researched transactions are consistent with that market as a whole.  However, uniquely, in the Photonics sector and the vertical market segments enabled by photonics, strategic buyers are acquiring orders of magnitude smaller businesses providing products that are highly differentiated with strong intellectual property positions.


 

Strategic vs. Financial on Buy and Sell Side

Like 2012 through 2014, the vast majority of transactions by volume and value are strategic. However, financial buyers and sellers are consistently more active since 2012 - financial buyers up to 20% from 3% of transactions and financial sellers up to 21% from 12%. Considering strategic buyers are more active in 2014 and 2015, this is a seller's market with higher strategic premiums in valuations for both strategic and financial buyers.

Valuations

For researched market segments enabled by photonics technologies, the average and median of reported Enterprise Value to EBIT, EBITDA and Revenue multiples in the first six months of 2015 and 2014 trend higher since 2012 and 2013 - especially multiples of EBIT and EBITDA.  Implied Enterprise Value includes implied equity value, earn-out and contingent payments, rights, warrants, options, and net assumed liabilities adjusted for size.
 

 

The Therapeutics (Biohotonics), Medical Imaging (Biophotonics), and Display (Information Technology) segments realize the highest average multiples of Enterprise Value to Revenue due to strategic acquisitions of lower middle market companies with strong IP portfolios serving high growth markets like point-of-care medical devices and consumer electronics. 

The highest average multiples of Enterprise Value to EBITDA for 100% equity transactions were realized by Volcano, a manufacturer of precision guided therapy medical devices (76x EBITDA); Sutran, a provider of real time data collection for environmental monitoring (56x EBITDA); Tokyo Electron, a supplier of semiconductor equipment (31x EBITDA); and Transmode, a provider of passive optical networking telecommunications gear (30x EBITDA).

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Few transactions report financials, because buyers are not required if a transaction does not have material near term impact on their financial statements. M&A transaction data is highly relevant, however, to understand market dynamics and buyer behavior.

Geography

Historically, the United States and Canada, as a geographical region, experience the most buy and sell side activity.  This trend is changing.  In the first six months of 2015, we see a much concentration of targets in Asia and Europe and of buyers in Asia.

 

Down from more than 25% in 2014, 14% of transactions represent buyers acquiring targets outside their geographical region.

Most Active Buyers

Strategic buyers are by far the most active - acquiring small and middle market companies across a wide breadth of photonic technology enabled market segments.  Consistent with previous years, Corning and Intel are very active buyers.  Unprecedented in 2014 is the relatively large number of acquisitions per strategic buyer.  2015 will trend similarly if these buyers make one of two more acquisitions this year.

 

There were more eight-figure consolidations in 2015 than in any one-year period over the previous 5 years. They include the medical device business of Covidien by Medtronic; optical networking gear provider, Alcatel Lucent by Nokia; life sciences instrumentation supplier, Pall Corporation by Danaher; and surveillance systems defense contractor, Exelis by Harris.

The Transactions

Follow this link to transaction detail.  <First Six Months 2015 Photonics M&A Transactions>