ESI heads to China with $18M acquisition

14 Nov 2014

Laser microfabrication systems specialist set to buy Wuhan-based Topwin Optoelectronics.

Electro Scientific Industries, Inc. (ESI), the Portland, Oregon, company that provides precision laser manufacturing equipment, has announced plans to acquire China’s Wuhan Topwin Optoelectronics Technology in a cash-plus-stock deal worth up to $18 million.

ESI says that the deal, which is subject to government approvals but expected to close early next year, will add expertise from one of the fastest growing laser design and manufacturing systems companies in China.

A filing with the US Securities & Exchange Commission (SEC) revealed that ESI has agreed to pay $9 million in cash, plus $4.5 million in stock over three years. Up to another $4.5 million in stock will be paid out if financial targets are hit.

“This acquisition is expected to add approximately $7-10 million in revenue to [ESI],” said the company, adding that it should also boost ESI’s earnings next year.

Topwin Optoelectronics sells laser systems used by its domestic consumer electronics industry, for example in indium tin oxide (ITO) patterning, circuit board cutting, precision welding, and various marking and cutting applications.

“Designed in China for the China market, these products deliver excellent capability in a low-cost platform,” says ESI. Wuhan, in the Hubei province of the country, is home to the “optics valley” industrial zone and also hosts the National Laboratory for Optoelectronics, is widely regarded as the center of the optoelectronics industry. Other local firms include the fiber laser company Raycus and supercontinuum source maker YSL Photonics.

Build local; sell local
Edward Grady, the CEO of ESI, said in a company release: "To compete and win in the fast-moving China market, ESI must design, build, and sell locally. The acquisition of Topwin gives us that immediate capability and significantly expands our footprint in China, the largest laser systems market in the world.

"With complementary capabilities, this acquisition expands our product portfolio, enables faster time to market and allows ESI to provide a more complete set of laser-based manufacturing solutions consistent with our focus on total-cost-of-ownership, to customers in China and throughout the region."

Hu Bing, Topwin’s general manager, added: "Our design and manufacturing expertise with a deep understanding of the specific China market requirements, coupled with ESI’s strong technology and global reach, creates an unparalleled opportunity to address the growing market for laser microfabrication tools.

"We believe joining ESI creates the best result for existing and future customers, employees and shareholders of both companies, and represents a significant step forward in expanding the use of our capabilities in China and across the region."

Strategic plan
The acquisition comes two weeks after ESI filed an operating loss of $5.6 million for its financial quarter ending September 27. Sales fell nearly 30 per cent year-on-year to $42.9 million.

At the time Grady said: “We are changing our processes and approach in order to better connect our core competencies to large and growing markets. As we execute our plans to revitalize ESI we expect to begin seeing results over the next several quarters that will lead to top line growth and a return to profitability.”

Grady replaced Nick Konidaris as the company's CEO last February, and said that he wanted to move ESI's strategy away from high-risk, emerging technologies and applications, and towards more established markets like smart phone and handset manufacturing - with an emphasis on modular product platforms.

"In the past, we have made large bets on emerging technologies and industry processes, only to discover that the applications did not emerge as we had expected and our market opportunity was smaller than we had hoped," he told investors in May.