The advisory and consulting firm Ceres, in an analysis covering more than 1,000 transactions, notes that M&A activity remained strong in photonics during 2016—and, in particular, that transactions involving companies dealing in “core photonics technologies and components” fetched higher average price/earnings multiples than did deals in any other manufacturing-oriented sector. In a separate study, the firm also looked more than 1,600 private-placement transactions in photonics over the year, noting that private-equity firms are increasingly targeting in Asia for their investments.
Some “atypically large” transactions
The 1,032 M&A transactions that Ceres identified for 2016 carried an aggregate deal value of US$114.6 billion. The company notes that the number included a few “atypically large” transactions, including the purchase of OmniVision Technologies by a coalition of Chinese private investment companies, for US$1.89 billion; the purchase of Newport Corp. by MKS Industries for US$1.05 billion; Rofin-Sinar’s acquisition by Coherent Inc. for US$0.96 billion; and the sale of Heptagon Micro Optics to the Austrian-based ams AG for US$0.92 billion.
Notwithstanding these large deals, Ceres also reports that, as in previous years, deals less than US$100 million in size dominated the picture, accounting for some 81 percent of the transactions for which a size was publicly reported (just under half of all deals last year). The company ties the strength of M&A in photonics middle markets partly to the action of strategic buyers, who are snapping up “order-of-magnitude-smaller businesses,” attracted by those companies’ strong IP positions and highly differentiated, niche products.
The actions of such strategic buyers, Ceres notes, brought some unusual names into the roster of most active buyers for the year. Foxconn Technology and Intel Corp., each of which acquired five firms during the year, topped the list for most active buyers by number of transaction; in terms of total transaction size, the most active buyers included Nokia Corp. (primarily for its acquisition of Alcatel-Lucent), Abbott Laboratories (which announced a US$9 billion acquisition price for diagnostics firm Alere Inc.), and Tesla Motors (driven partly by the acquisition of another Elon Musk-controlled concern, Solar City). (Interestingly, in early December 2016, Abbott Labs filed suit to terminate the Alere acquisition.)
A tilt toward Asia
In the absolute number of transactions, the most active area for acquisition, according to Ceres, were LED packages and luminaires, responsible for 115 transactions—more than 10 percent of the deal total for the year. Other active sectors included materials and coatings (94 deals), communications (64 deals), semiconductor equipment (62 deals), and displays (60 deals).
Geographically, Ceres has observed a marked change in where acquisition targets are located. Historically the geographical region comprising the United States and Canada has tended to see the largest amount of acquisition activity on both the buy and sell sides. But the company notes that, in both 2015 and 2016, Europe and Asia have both outstripped the U.S./Canada region. In 2016 in particular, while U.S./Canada accounted for 27 percent of acquisition targets, Asia/Pacific accounted for 40 percent, and Europe for 31 percent.
A separate report by Ceres on private-placement investments in photonics similarly noted an Asian emphasis; Asia/Pacific deals accounted for 47 percent of private placements in photonics in terms of number and 80 percent in terms of total transaction value. “It appears,” the company notes on its website, “that investment in European and North American Photonics companies is focused on technology commercialization whereas investment in Asian Photonics companies is focused on growth.” The company also noted that private-equity firms are tending to get involved “at a much later stage,” targeting firms that have already booked at least some meaningful revenue (i.e., greater than US$10 million).
Ceres—whose president and founder, Linda Smith, has talked with OPN previously about consolidation activity in photonics—is an M&A advisory and consulting firm focusing on the photonics market. More information about its 2016 studies, including links to the full report, can be found on the Ceres website.