What a difference a month has made for Coherent Inc (Nasdaq COHR)! The stock traded at $151.95 prior to Lumentum Holding (Nasdaq LITE) announcing their agreement to acquire Coherent for a $5.7 billion cash and stock transaction on January 19th. Coherent investors liked the merger as stock value rose approximately 30% with the deal valuing shares at $226.
On February 8th, Coherent received an unsolicited proposal from MKS Instruments (Nasdaq MKSI) valuing each share of Coherent common stock for $115.00 in cash and 0.7473 of MKSI common shares. This amounts to about $240 per share, valuing Coherent at $6 billion. As if that was not enough II-VI (Nasdaq IIVI) stepped up to the table and offered $130 per share in cash and 1.3055 II-VI common shares for each Coherent share, valuing the deal at $260 a share. Reacting to the multiple offers, Coherent’s stock value has risen over 57% in the last month.
On January 5th I wrote an article touting why the merger and acquisition activity in the photonics industry would continue to thrive in 2021. The acquisition interest in the Santa Clara-based Coherent - a global supplier of industrial and fiber laser solutions - further illustrates the strategic global significance of the photonics industry. Market leaders MKS Instruments, II-VI and Lumentum understand Coherent’s unique value proposition and relevance with respect to their various market and technology driven aspirations. Let us examine a few reasons why Coherent is being vigorously pursued and the benefits to the photonics industry.
Markets
Depending upon the forecast methodology and market segmentation, the laser industry is valued between $10-15 billion in 2020 and expected to grow at a CAGR of 8.6% thru 2025. Advancements in material processing and precision manufacturing for semiconductors, microelectronics, consumer devices and communications are driving the need for more laser-based systems. Growth markets and next gen applications where laser technology will play a critical role include Lidar, 5G wireless networking, flat and OLED displays, sensing, autonomous vehicles, 3D measurement, and energy.
Materials & Supply Chain Logistics
The challenges posed by the Covid-19 pandemic and political/technology hurdles with countries like China place an importance on controlling your destiny. While the photonics industry has proven resourceful and resilient in 2020, successful companies act strategically and proactively to secure their competitive advantage. Lumentum, MKS Instruments and IIVI understand photonics manufacturing is a global endeavor which requires the materials and efficient logistics to achieve their growth trajectory and profitability goals.
Ability to Scale
Manufacturing high precision components for next gen products and applications is a non-trivial process requiring the ability to efficiently scale and bring products to market. Projects are often delayed when the transition from R&D to manufacturing encounters unforeseen technology hurdles or internal processes breakdown. Smart companies plan for future growth by investing in ways to accelerate project timelines, engage in a diversity of markets and emerging applications, resulting in quicker return on investments.
Creation
Creation accelerates innovation. The photonics ecosystem at large is inquisitive and strives to create new technology, products, markets, and applications. The respective leadership of Lumentum, MKS Instruments and II-VI – along with other companies in the photonics community – strive to create the next evolution of their company. They envision what is needed to drive innovation in key growth markets where photonics is the enabling technology, consider the risks and set the strategic goals for the future.
Lumentum, MKS Instruments and II-VI will make their cases beyond the financial valuations for acquiring Coherent. All companies will cite advantages in delivering value to their clients in processing engineering materials, optoelectronic components, and manufacturing high precision optical systems for defense, commercial, industrial, scientific, and academic markets. They will need to consider regulatory hurdles, anti-trust concerns, revenue conflicts and product overlap. Coherent will consider each proposal to determine the best value for all stakeholders involved – most notably the effect on current and future partners and clients.
The photonics industry continues to thrive in 2021!