08 Jul 2011
Another consolidatory step in the photonics industry, as Newport agrees a $230M cash purchase of the Israeli metrology and instrumentation firm.
Just a few weeks after a panel of leading photonics industry CEOs called for more consolidation in the sector, Newport is moving to effect that trend, through the acquisition of Israel’s Ophir Optronics.
The Californian company says that it will buy Ophir, which is listed on the Tel Aviv Stock Exchange in Israel, for $8.43 per share - equivalent to $230 million cash. The deal will gives Newport a strong entry point into new defense and aerospace applications, and is set to close in the final quarter of the year - assuming that all regulatory approvals, including the assent of Ophir’s shareholders, are received.
Approval from Ophir's shareholders is highly likely, given that around two-thirds of the company's shares are held by the company's founding team and close associates. Assuming that all regulatory hurdles are passed, Ophir will form the third business division under the Newport umbrella. In an investor call to discuss the acquisition, Newport's management team said that existing CEO Yaacov Zerem will continue to lead the business, reporting directly to Newport CEO Robert Phillippy.
Newport had been dropping hints for several months that it would look to exploit a strong cash position through acquisitions after a record year in 2010. optics.org reported in February that the company would be looking for "bolt-on" deals similar to its previous acquisition of the New Focus brand from Oclaro in 2009. And according to its senior managers, Ophir and Newport have been working on a possible merger for the last year or so.
Ophir, which has been operating since 1976 and, according to Newport, has never made a loss in any fiscal year, posted sales of $111.8 million in its latest financial year (ended March 31, 2011), generating an operating income of $12.5 million. The company currently employs 650 people across its various locations, and has grown its revenues at a compound annual rate of 19% between 2006 and 2010.
Newport says that the acquisition will give it a platform in the high-growth applications of thermal imaging and 3D non-contact measurement in particular, and Ophir’s already-strong financial performance will immediately add to Newport’s profitability.
Balancing the portfolio
Phillippy sees the acquisition as a way to balance out Newport's wider business. While the company has recently posted extremely strong results, and is still seeing record orders, it is still somewhat exposed to the semiconductor industry cycle that has driven much of the recent growth.
Crucially, the Ophir acquisition will give Newport an immediate entry into the defense and aerospace sector, which accounts for around 40% of the Israeli firm's turnover at present. The company sells into top-tier defense contractors, and under the ownership of a US-headquartered company it is likely to gain greater access to more sensitive defense and aerospace applications in the US.
In addition, Ophir's expertise in infrared optics will also give Newport access to the CO2 laser consumables market - with some 58,000 of the sources believed to be deployed around the world.
Phillippy also expects strong growth in thermal imaging applications of Ophir's infrared technologies - particularly as features such as night vision systems increasingly cross over from the defense realm and into commercial applications. The CEO says that Ophir already has a significant order relating to night vision systems in high-end automobiles, for example.
And although the 3-D non-contact holography sold under Ophir's "Optimet" brand only makes up around 10% of overall revenues currently, this business line is expected to show very strong growth as it gains commercial traction in applications such as the emerging area of "digital dentistry".
Based on a technique called conoscopic holography, the laser-based systems are used to provide high-precision 3-D scans for an extensive range of dental products, such as crowns and bridges, in place of traditional molds.
Newport says that its recent strong cash generation and a new credit agreement means that it will be able to afford the $230 million purchase price without needing any major additional finance. However, with $127 million of bonds due early 2012, the company is now saying that it has plans to access credit "on a much larger scale".
The firm is aiming to build up a $750 million business by 2013. While the Ophir transaction will go a long way towards Newport achieving that goal, it appears likely that further acquisitions will be very much on the cards before then.
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