Goodbye Rofin and Newport…
Laser companies come in all sizes, with a handful of laser companies being very large and generally publicly owned, a few others that could be considered medium sized, and many others that are very small. Most of the small and medium ones have been around many years and they typically quite happily serve one or more niche laser segments. Occasionally one of these smaller laser companies get gobbled up by a larger laser company in an effort by the larger laser company to acquire new technology and potentially enter new market...
Laser companies come in all sizes, with a handful of laser companies being very large and generally publicly owned, a few others that could be considered medium sized, and many others that are very small. Most of the small and medium ones have been around many years and they typically quite happily serve one or more niche laser segments. Occasionally one of these smaller laser companies get gobbled up by a larger laser company in an effort by the larger laser company to acquire new technology and potentially enter new markets. This is a very positive sign for the industry, because at the very least, it shows that the larger laser companies feel there are still new technologies worth acquiring, and new laser markets worth entering. IPG, for example, has acquired several smaller laser companies so that it could expand its reach in the fiber laser segments it hasn’t competed, such as UV lasers, mid-IR lasers, ultrafast, etc. In addition to being a good sign for the industry, these types of acquisitions are an indication as to which directions these large laser companies are headed, in other-words, these acquisitions help me to read a laser company’s tea leaves.
But in the last few months, I have seen a very different type of acquisition taking place, large public laser companies are being acquired by other large public companies. In February, MKS Instruments announced that it was acquiring Newport for $980M, and in March, Coherent announced it was acquiring Rofin-Sinar for $942M. If large companies acquiring small laser companies are a good sign, than large companies acquiring large laser companies must be even better, right? Unfortunately that isn’t true, in fact it could be a bad ominous sign for the laser industry ahead.
While I definitely see a positive synergy between MKS Instruments and Newport, and also between Coherent and Rofin-Sinar, that is only a small part of the story. The mergers of these companies are the after-the-fact outcomes, but why did they occur in the first place? Why did Newport and Rofin’s stockholders push for these acquisitions? It had been rumored that Newport had been up for sale for many years now, and it was also no secret SilverArrow Capital Holding was “unhappy” with its investment in Rofin.
It all comes down to this, investors put their money in a company for one main reason, to bring them a profit, and if these profits aren’t happening fast enough for the investors, they will want out, especially when one of the company’s competitor’s seems to be growing their revenue by over 20% per year. “If they can do it, why not this company?”
Last year, Newport reported that its Q3 2015 revenues were $148M, which is about average quarterly revenue it reported back in 2012. Rofin-Sinar reported Q4 2015 revenue of just $112M, which is about the quarterly revenue it reported back in 2010. During this same period, IPG’s quarterly revenue went from an average of $75M in 2010 to over $223M in Q4 2015, or three times as much. (If you guessed that IPG was the laser company with 20%+ yearly gains, you would be correct.)
Still, even IPG is not immune to laser slowdowns. Recently they reported Q1 2016 revenue of $207.2 which was their third consecutive quarterly revenue decline, and only a 4% revenue gain year-over-year. IPG brushed off the weaker-than-normal quarter to the randomness of quarterly sales, but perhaps IPG is hitting the same problem which Apple is up against, the more successful you are at selling a product with a relatively long-life, the less people there will be left that still need to purchase your product. In other-words, they are starting to hit up against their own success.
The Rofin and Newport acquisitions by Coherent and MKS could lead to big changes in the laser industry, and is likely a testament that rapidly falling laser prices and the threat of higher-quality high-power Chinese lasers could be starting to take a toll on some of the larger laser players. Still I look at this as a very positive outcome for both Rofin and Newport who might clearly benefit from a change-of-course. I can’t wait to see what these companies have in store for us in the future.