CVI goes big time with Melles Griot deal
ALBUQUERQUE, NM-The last few years have seen much consolidation in this industry, initially geared toward helping some companies move from telecom into other markets and others to leverage the market presence of veteran competitors. In one of the few cases of a smaller company taking over a larger one, in early May CVI announced its intent to purchase Melles Griot (Carlsbad, CA) for an undisclosed amount.
The new company, which will be called CVI Melles Griot, brings together two entities that have spent the last few years in the shadow of larger entities such as Coherent and Newport/Spectra Physics. It also combines complementary product lines that have very little overlap and enables both companies to move into new markets with established brands.
“Our goal is to help our customers beat their competition to market, and this acquisition enables us (CVI and Melles Griot) to bring design, manufacturing, assembly, and testing of photonic products and optical sub-systems under one roof,” said Stuart Schoenmann, CEO of CVI. “Vertical integration of the light source, optics, mechanics, and the detection systems provides a single manufacturing source, which leads to more highly integrated solutions (and) improves quality, performance, and service to the customer.”
Schoenmann added that it was also important for some of CVI’s U.S. customers that the company have domestic ownership and control over various technologies and products, such as robust environmental performance through dense coating technologies and improved wavefront quality. The combined company also benefits from a complementary geographic fit.
“Over the years, CVI has established Asian manufacturing facilities, acquired two companies in Europe (Technical Optics and Quality Laser Optics), and acquired two companies in the United States (Optical Components and, now, Melles Griot, which has a strong presence in Japan),” Schoenmann said. “These actions have enabled us to expand our geographic footprint to provide local direct sales support and manufacturing to our customers.”
This deal also benefits Melles Griot on several levels. Its former parent company, Barloworld Ltd. (Johannesburg, South Africa), had made it clear for the past year that it was interested in divesting Melles Griot, of which it acquired majority share in 1988. After years as a huge conglomerate involved in markets as diverse as cement, mining, earth moving equipment, automobile dealerships, home improvement, steel, paint, and, of course, optoelectronics, Barloworld wants to focus on industrial distribution and logistics and move away from manufacturing, according to Lynn Strickland, VP of Business Development for Melles Griot.
“Barloworld made a decision to get out of manufacturing because it was not producing the types of return on investment they were seeking,” he said. “A few years back they were expanding into everything. Then they did a strategic analysis of share price and found that large conglomerates seldom command the highest share prices.”
According to Strickland, the Melles Griot executive team has known since last summer that this was Barloworld’s plan, and he says the company was “shopped around a bit”.
“We were very happy when CVI came up because there were other potential acquirors out there who would have bought us and dissolved the company,” he said. “But with CVI, they are in our space, we are strategically aligned, and the management structure understands the driving forces in our industry.”
Strickland also notes that there is a lot of “synergistic opportunity” for the newly combined company in the optics and catalogue space as well as the laser business.
“The laser business makes up almost half of Melles Griot, and CVI is not in that space at all,” he said. “So this adds on to their portfolio and gives them an immediate presence in the laser market. In addition, they manufacture a lot of laser-related optics so there are some vertical integration opportunities.”
Both Schoenmann and Strickland felt it was premature to discuss any potential changes to the management team and employee base of Melles Griot. They also felt it was premature to discuss any potential changes to the various Melles Griot facilities, including the company’s headquarters in Carlsbad.
“In the interest of efficiency the combined facilities will be examined with a focus on maximizing synergies,” Strickland said. “CVI has some equipment they are not utilizing that they plan to move into Melles Griot facilities, and vice versa. We will also be sharing some best practices.”
Schoenmann confirmed that CVI-whose financial backing comes from Norwest Equity Partners (Minneapolis, MN), which acquired CVI Laser in 2003-is actively looking at additional acquisitions going forward.
“Strategic acquisitions will enable us to provide new and improved products, rapid turnaround times, and even faster times to market, which will enable our customers to beat their competition to the market,” he said.
-Kathy Kincade