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Minimal product overlap is key to CVI's acquisition strategy

28 Sep 2007

When CVI announced its plans to acquire Melles Griot back in May, it was just one link in a long chain of events regarding the deal. Stuart Schoenmann, the CEO of CVI, gives OLE a behind-the-scenes look at the acquisitions process and shares his thoughts on the need for further consolidation in the industry.

CVI knows how to acquire firms. Starting in June 2005, CVI expanded its rapid prototyping capabilities by purchasing Optical Components. In April 2006, it bought Quality Laser Optics in a move to boost its large optics manufacturing capability. Then in May 2007, it announced plans to acquire Melles Griot. The man at the helm, who plays an instrumental role in CVI's acquisition strategy, is company chief executive officer Stuart Schoenmann.

What is CVI's acquisition strategy?
Our acquisition strategy starts when we develop our business strategy. We analyse our capabilities and try to assess where the gaps are. From that we create a list of potential acquisition targets that will fill the gaps. These gaps can be in capability or market. The market can be geographic or within a distinct segment. We try to bounce off our gaps with who might be a natural fit and satisfy the question of needing that capability. For our strategy, we don't want to have a lot of overlap in capabilities. We look to bring something new to CVI when we make an acquisition. We do a review twice a year to see where we are, what we are missing and what the gaps are. Melles Griot had been on our list since early 2005. We picked them out because their products are complementary to CVI's and there is minimal overlap.

What attracted you to Melles Griot?
The Melles Griot brand is really strong. We felt that putting our two brands together would create an even stronger force in the market. They also have a different focus in the marketplace than we do in terms of the market segments that they penetrate; so Melles Griot provides us with more diversity than we currently have.

Melles Griot is much stronger in Europe than CVI and its presence in Japan is truly unique. It is unusual for a US-based company to have a strong presence in Europe and Japan. We want to continue to strengthen Europe, and then we will turn more attention to Asia. CVI has a very strong operation in Korea. Now we will be strong in Korea and Japan and that is extremely positive.

What steps does a typical acquisition process involve?
You go through a bid process and often there is a formal auction process. After that, you submit an offer, do the appropriate due diligence and then finalize your offer. You then negotiate a contract and with all of the attachments the paperwork can be 6–12 inches, or more, thick.

A tremendous amount of time is spent on legal and financial negotiations. Once you have an agreement, it passes over to the lawyers and accountants. My advice is to never throw out a piece of paper. You may have to go back through the chain of events: what was the idea and how did we interpret it. At the end of the day, there are numerous steps involving many professionals but it is clearly worthwhile.

How does the Melles Griot acquisition differ from any other?
Melles Griot was very complex and had multiple entities in different countries. You have to get all of the legal requirements correct for all of the different sites in each of the countries. Each individual site comes with its own legal implications: under UK, US or German law, etc. For example, leases can be completely different in each country. You have to double check all of your assumptions with a local person. Everything is unique by country.

How will Melles Griot and CVI merge?
We organize manufacturing by centres of excellence. We will leverage Melles Griot's centres of excellence with ours. We will be able to push some of our products through their centres of excellence and vice versa. Part of our strategy is vertical integration and Melles Griot supports this strategy. Melles Griot has many manufacturing sites and they also procure a lot of optics.

Are you actively looking to make more acquisitions in the future?
We will continue to look at companies and make acquisitions – we are not done by any means. We believe that the industry is ready for consolidation and indeed it is necessary. The market dynamic is such that to really get efficiencies, there needs to be further consolidation in the industry and we are looking to participate in this actively.

Our approach to acquisition is friendly and we do all-cash transactions. When we acquire a company, we typically want to retain the management team and to utilize the existing expertise. We then look to provide a channel to market or greater financial support or better processes.

So far we have been able to infuse investment to make the new subsidiary more efficient. Most of our acquisitions have doubled or tripled in size since we acquired them. We try to provide whatever they need, whether it be equipment or financial and management expertise.

• This article originally appeared in the September 2007 issue of Optics & Laser Europe magazine.

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