Coherent Asks Rofin For Its Hand In Marriage
Coherent and Rofin are planning to be a couple but is this a good thing for both parties or will this turn out like so many engagements on The Bachelor?
I have always greatly admired Coherent as a laser company, as the company has widely spun its web of laser products and has done an excellent job of managing and enhancing the products in the markets to which they are applied. A good share of Coherent’s success through the years has to be attributed to their CEO, John Ambroseo. Mr. Ambroseo has been with the company since 1988 and has been the CEO since 2002.
Rofin-Sinar is a very different type of company than Coherent. Rofin’s CEO has only held the position for less than a year, and the insides of the company have been anything but harmonious. 10% of the company is owned by the investment firm SilverArrow, which has accused Rofin of covering up an alleged embezzlement by a “rogue” employee. Rofin has its share of management issues besides this as well.
Aside from its management problems, Rofin has a solid position in the materials processing business, and has successfully introduced high-power fiber lasers into its mix to compete with IPG Photonics, which overall hasn’t been an easy task. In 4Q2015 the company announced that its product mix was 53% fiber to 47% CO2which had been 40% fiber, 60% CO2 a year earlier. While this is quite encouraging, Rofin has not caught up with IPG in terms of keeping its fiber laser costs as low as IPG or building fiber lasers with power levels as high as IPG can. Still Rofin is making quite competitive fiber lasers.
While Coherent and Rofin are clearly very different companies, both have faced the same problems for the last four years: their laser revenues haven’t grown much--averaging less than 2% growth per year. Admittedly this isn’t really either company’s fault, and it has to do more with the laser industry as a whole. These recent years have seen rapidly dropping laser prices, and a stagnation in some of the growth areas driving lasers. Of large laser companies, only IPG has managed to buck this trend.
This leads us to the recent news of Coherent’s intention to acquire Rofin. Is this a good match or a bad match, and how will this change both companies going forward if the merger is approved? As for fit, I think most people will agree that this is a very good match in terms of product mix and overlap. Coherent gets most of its industrial heritage from the flat panel display area, and its blend of ultrafast lasers, and from scientific and research markets. Rofin is the large industrial processing company with a strong presence in automotive and machine tools. No doubt there is some overlap in the micro processing area, and that is certainly something to watch going forward.
Aside from product mix, perhaps more important is each company’s market presence. Both companies are technically American companies with American headquarters, but Rofin was spun-off from Siemens and still possesses a very strong German heritage and European customer base. These connections are sure to benefit Coherent.
But there is one more aspect of Rofin that likely appealed to Coherent. While Coherent derives over half its revenue from Asia, Rofin gets much less from Asian companies, whereby IPG has a strong lock on fiber lasers to China. If Rofin is to be successful, long-term, it needs to acquire more Asian customers for its high-power fiber lasers. With some help, Coherent can help foster that, but IPG is not likely to release its hold on that market segment willingly.
For its part, IPG has recently made a very cohesive effort to expand its reach well beyond its core industrial materials manufacturing markets and this could well start to infringe on Coherent’s core markets. Let the battles begin.
In any case, the acquisition of Rofin by Coherent will likely bring about a company which is stronger than the sum-of-its-parts, which is always the goal of any merger. Should the acquisition be approved, the number of large laser companies will be smaller by one. For an industry like lasers in the present environment, this should be perfectly acceptable; but Coherent still has the large task ahead of it building one big happy company, and certainly, this could be a challenge.