First Quarter Photonics M&A is off to a slow start, but strategic buyer appetite for capabilities deals remains strong

2023 Photonics M&A activity hits low, but strategic buyer appetite for capabilities deals remains relatively strong

2022 Photonics M&A did not stack up against prior years with inflation, rapid interest rate hikes, geopolitical instability, losses in stock and bond markets, supply chain risk and labor shortages

The global M&A market for companies employing photonics technologies as core differentiators is down from blockbuster years of 2020 and 2021

2021 marks highest total M & A deal value in history and a banner year for photonics technology deals

With a radical collision of industries, the adoption of photonics and the growth of companies employing photonics are accelerating

Despite the pandemic, frothy public markets and new normals refuel photonics M&A and IPO markets in 2020

In the worldwide photonics industry, 2019 was another record year for M&A in terms of both deal value and deal volume. However, M&A activity for pure-play photonics companies was down from recent years.

Today’s transformative age is blurring lines between economic sectors, while creating new and unique opportunities.  With this collision of industries, leaders in traditionally defined sectors are seizing opportunities to create new value for their customers and reshape their businesses.

Significant changes to Committee for Foreign Investment in US (CFIUS) review process expand its jurisdiction to new types of transactions and change the timeline and procedures for seeking approval for a transaction from CFIUS.

Buyers address the challenges of slower growth, an abundance of investment capital, advances in digital technologies and government intervention with M & A.  In addition to consolidation and scaling manufacturing operations in Asia, buyers are acquiring companies employing photonics technologies to open new markets, enhance capabilities and implement new business models.

$29B of $822B private placements worldwide goes to work commercializing and growing businesses with core photonics technology.  Communications, LED's, and solar attract the most investment.  Autonomous vehicles, 3D sensing, point-of-care medical diagnostics and AI powered imaging see the most activity.  With exception of smart architectural glass, investment in pure-play photonics lags.

Whether you are an entrepreneur starting-up or the leader of an established business, a solid understanding of the available sources of capital and today's expected rate of return for capital is the fundamental step in crafting a financing and fund raising strategy.

Precise practices vary between individual investors or lenders in a given category and change with market conditions. Identifying appropriate sources of capital and developing a fund raising strategy to tap them depends on knowing what kinds of investments investors and lenders are seeking.

Understanding today's country-specific cost of equity capital alongside industry dynamics help business valuation professionals advise clients in making better international investing, financing, and buy/sell decisions. A business identical in every way except the country in that it operates is valued differently by a buyer or investor depending on where that business operates. A buyer expects a higher return in exchange for the higher risk when acquiring a company that operates in a country that has higher financial, economic and/or political risk.

Why? Because whether planning to sell a business short term or long term, the costs of not capturing the value of intellectual capital are enormous - improper deal structures, lost financial opportunities, assumptions of greater execution risk, over/under payments for asset acquisitions. And without protection, a reasonable buyer would not pursue.

Monte Carlo simulation is a well established method for simulation in engineering models - including ray tracing and tolerancing of optical systems. Monte Carlo simulation, Real Option, and other advanced mathematical methods are being applied more and more to financial modeling and valuation of high risk, intangible assets such as intellectual property, R&D, and venture capital financed businesses.

When start-up or growth capital is not available or at a very high cost, bootstrapping is a feasible strategy – even for high technology ventures requiring significant assets, a highly specialized and expensive workforce, and years to bring its first products to market. It is often, however, a last resort – considered only after burning through many months shopping business plans to venture capital firms, lenders, or those at established corporations managing the R&D budget. Instead, consider bootstrapping and harvesting your most valuable asset – your technology – for cash, strategic customer relationships, market intelligence, application know-how and more.

Transcending the $10million Plateau

According to research from SPIE, there are about 2750 companies worldwide supplying more than $150billion of photonics components and materials. Of these companies, more than 2000 realize revenues of less than $10million, accounting for less than 4% of worldwide sales. With photonics components at the core of most modern technologies, this is an exciting time for the industry.  So, have the stars aligned for more photonics companies to transcend the $10million plateau?  If so, what can a small business do to become a larger market participant?

As M&A activity heats up, optics and photonics companies are increasingly looking across borders for a good strategic fit — and that creates both challenges and opportunities.

Additive Manufacturing, also known as 3D Printing, is an innovation grounded in photonics. It is a process for making a physical object from a 3D digital model, typically by laying down many successive thin layers of a material. The technology is diffusing from prototyping to large scale manufacturing of final parts. Today, early adopters including GE, Siemens, Google/Motorola, and Boeing are 3D printing intricate, high mix, low volume, and weight-sensitive final parts.

Accurate and predictive software modeling could allow standardization for small-animal imaging

Digital illumination overcomes the limitations of fluorescence imaging

The use of white LEDs for solid-state lighting to address applications in the automotive, architectural and general illumination markets is just emerging.

A valuation of your privately held technology company is critical for strategic planning and decisions around financing, buying or selling a business

Whether you are an entrepreneur starting-up or the leader of an established business, a solid understanding of the available sources of capital and today's expected rate of return for capital is the fundamental step in crafting a financing and fund raising strategy.

The photonics industry and the vertical market segments that the industry enables are in their infancy poised for rapid growth or already on a steep growth curve. The LED industry is where the semiconductor electronics industry was in the mid 1960’s. Laser based research laboratory instrumentation that enabled the mapping of the human genome and ground-breaking discoveries in proteomics is now being deployed at the point-of-the-care to deliver personalized diagnostics and therapies. Optical communications, display and camera technologies continue to fuel smarter phones and tablets.  The list of enabled markets is exhaustive.