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Photonics Industry M&A Activity

Premium Priced Strategic Acquisitions in Vertical Markets Served

Given strategic buyers with large cash reserves, a better financing environment for private equity, and an improved macro-environment, M&A activity in 2014 is more robust than in previous years. In the vertical market segments employing photonics technologies as core differentiators, a trend of premium priced, strategic acquisitions persists through 2014.

Middle market companies employing photonics to serve markets, such as 3D Printing, Unmanned Aerial Vehicles (Drones), LED Lighting, and Sensor Networks (Internet of Things), are realizing high valuations. So far this year, a handful of lower middle market companies with strong photonics IP portfolios are driving-up average Enterprise Value/Revenues multiples.

Leading the pack are: Selah Genomics, a nanotechnology company commercializing bio-sensing contrast agents that replace fluorescent dyes and quantum dots for biomedical and anti-counterfeiting applications (56x Revenue); Airinov, a provider of agronomic drone solutions based on optical sensor technology (38x Revenue); World Sheen International, provider of solar powered lighting solutions (23x Revenue); and Plextronics, a developer of printed lighting, display, solar, and other organic electronics (20x Revenue).

Multibillion-dollar deals are inked by Thermo Fisher Scientific, The Carlyle Group, Covidien, Grifols, Panasonic, and Essilor - strategic buyers consolidating medical device and diagnostic businesses.  Corning, and Facebook invest $billions to extend into new Gorilla Glass markets, and to future proof a social media platform.  Shanghai Pudong Science and Technology and TE Connectivity acquire $billion leaders in imaging sensors to catch first-to-market advantages in the Internet of Things.

The Transactions

M&A transactions are researched with closing, effective, or announce dates from January 1 to September 2, 2014. Transactions volumes, values, geographies, and market segments are analyzed. Values are in $US at historical rates of exchange. Follow this link to transaction detail.  <2014 Jan to Aug Photonics M&A Transactions>

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Activity

The Materials & Coatings, Medical Diagnostics, Display, and LED Luminaires segments see the most activity in volume of transactions.

 

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In 2014, the total and average Enterprise Value of the 258 transactions reporting financial data are $62 billion and $250 million respectively.

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Valuations

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

Enterprise Value/Revenue Multiples

The LED Packages & Luminaires (Lighting), Materials & Coatings (Photonics), Metrology (Advanced Manufacturing), and Surveilliance & Navigation (Defense, Security & Sensing) sectors realize the highest average multiples of Enterprise Value/Revenue due to strategic acquisitions of lower middle market companies with strong IP portfolios.

Leading the pack are: Selah Genomics, a nanotechnology company commercializing bio-sensing contrast agents that replace fluorescent dyes and quantum dots for biomedical and anti-counterfeiting applications (56x Revenue); Airinov, a provider of agronomic drone solutions based on optical sensor technology (38x Revenue); World Sheen International, provider of solar powered lighting solutions (23x Revenue); and Plextronics, a developer of printed lighting, display, solar, and other organic electronics (20x Revenue).

Enterprise Value/EBITDA Multiples

The LED (Lighting), Surveilliance & Navigation (Defense, Security & Sensing), Optics (Photonics), and Solar (Energy) sectors realize the highest average multiples of Enterprise Value/EBITDA. The Diagnsotics (Biophotonics) sector follows closely.  For more information on valuations realized in Biophotonics, please read Biophotonics M&A Activity.

Highest multiples are realized across multiple market segments by:  ProPhotonix, a manufacturer of LEDs (125x EBITDA); ProteinSimple, a developer of instrumentation and consumables for protein analysis (44x EBITDA); SMA Solar Technology, a provider of solar inverters (44x EBITDA); Given Imaging, a provider of gastrointestinal diagnostic products based on a wireless pill camera (34x EBITDA); and K.J. Pretech Co., a Korean manufacturer of injected molded optics for mobile phones (31x EBITDA).

Not all transactions report financials, because buyers are not required if a transaction does not have material near term impact on their financial statements. For this reason, comprehensive valuation opinions rarely consider M&A transactions in their analysis. M&A transaction data is relevant, however, to understand market and buyer dynamics.

Small and Middle Market

45% of researched transactions disclose the transaction value. Of those disclosed, 33% and 47% are small market (<$5M) and lower to middle market ($5 to $100M) transactions.

Since 2010, the lower and middle of the M&A middle markets are robust. These researched transactions are consistent with that segment of M&A 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 product development roadmaps and intellectual property positions.

Strategic vs. Financial on Buy and Sell Side

Like 2012 and 2013, the vast majority of transactions by volume and value are strategic. However, financial investors are continuously more active since 2012 - financial buyers up to 17% from 3% of transactions and financial sellers up to 17% from 12% involving financial investment sellers. If strategic buyers are more active in 2014 as forecast, this is a seller's market with higher strategic premiums in valuations for 2014.

Geography

Historically, the United States and Canada, as a geographical region, experience the most buy and sell side activity. However, in 2014, there is significantly more activity in Asia.

Approximately 25% of transactions represent buyers acquiring targets outside their geographical region.

Most Active Buyers

Financial buyers in Korea are by far the most active - acquiring small and middle market optics, laser, and materials companies. In addition to below, another 8 strategic buyers, including Stratys, Phillips, and Carl Zeiss, acquire two entities each.

Following Thermo Fisher's acquisition of Life Technologies, the largest transactions thus far in 2014 are: Corning's acquisition from Samsung of Korea based supplier of inorganic materials and TFT-LCD glass substrates for displays and solar devices, and thermochromic coated glass/solar light control glass; The Carlyle Group's acquisition of Johnson & Johnson's Ortho-Clinical Diagnostics; and Facebook's acquisition of Oculus VR, a manufacturer of wearable immersive virtual reality technology.

Other multibillion-dollar deals are inked by Covidien, Grifols, Panasonic, and Essilor - strategic buyers consolidating medical device and diagnostic businesses. Shanghai Pudong Science and Technology and TE Connectivity also acquire $billion leaders in imaging sensors to catch first-to-market advantages in the Internet of Things.

The Transactions

Follow this link to transaction detail.  <2014 Jan to Aug Photonics M&A Transactions>