|Oxford, MA and Manchester, NH -- IPG Photonics (Nasdaq: IPGP) has agreed to acquire JP Sercel Associates (JPSA) for an undisclosed amount. The deal will expand IPG's offerings of laser systems in fine-processing, precision laser cutting, drilling, and micromachining of nonmetals (glass, semiconductors, ceramics, etc.).
JPSA specializes in advanced laser micromachining, micro cutting, scribing, and laser lift-off for semiconductors, microfluidics, LEDs, thin-film solar panels, micro-electromechanical systems (MEMS), biomedical technology, and industrial automation applications." The firm, which will be renamed "IPG Microsystems LLC," will continue to sell its UV and excimer laser systems as well as systems using DPSS lasers, noted CEO/CTO Jeff Sercel. At the same time, though, "we strongly believe there are significant growth opportunities using advanced fiber lasers to displace traditional laser sources in high growth applications," he added. "Together, we will be able to sell into new applications, expand geographically and accelerate into markets where there are needs for advanced fiber laser technology."
For IPG, the deal presents "significant sales synergies," explained CEO Valentin Gapontsev. "The combination of JPSA's specialized laser systems and the UV and short-pulse fiber lasers that IPG is developing now should allow us to deepen our penetration of the $800 million fine-processing market." IPG's extensive sales and service network will also help JPSA expand its global reach, he added. The deal will add approximately $4M to IPG's revenues and subtract roughly $0.01-$0.02 from earnings/share for the remainder of 2012, but will be accretive to earnings in 2013.
What the analysts are saying
Market reaction to the IPG-JPSA combination seems generally upbeat. "We positively view the bolt-on acquisition," writes Patrick Newton from Stifel Nicolas, saying this will increase the exposure of JPSA's excimer laser systems, improve sales thanks to IPG's channel, and help scale up JPSA's systems business.
For IPG, the deal fulfills a desire, stated as recently as the company's 2Q12 results call, to "get some traction" in the fine-processing sector. JPSA brings expertise in excimer and UV lasers, as well as a portfolio of picosecond laser systems used in micromachining.
Mark Douglass of Longbow Research points out that IPG is pushing higher-energy green lasers and eventually UV and ultrafast lasers, for which JPSA has "not only an experienced knowledge base for application development but also a product platform for direct sale to end users," he writes.
Adding JPSA also will give IPG a more direct pipeline to sell to end users, particularly in Asian markets, which brings up an interesting paradox -- acquiring a systems integrator might seem to negate IPG's public promise to not compete directly with laser system OEM customers. That probably depends on how you define an OEM by market and technology, points out Douglass. The JPSA deal probably won't bother larger systems integrators and flat-sheet metal processing, but it might be a worry for smaller OEMs, particularly those in the fragmented low- to medium-power laser systems sector -- " [they] should be concerned just like when Trumpf decided to grow its systems businesses outside traditional metal fabrication," he told ILS. "The really small marking/engraving units are probably too commodity-like and not profitable enough, while the precision pulsed and medium markets are probably ripe for the plucking as long as IPGP can buy and/or develop the application knowledge."