Consolidation Abounds in the Solid State Lighting Industry
The number of consolidation deals in the energy efficient lighting (EEL) industry, a broader category for the solid-state lighting (SSL) industry, grew more than 10% from 2009 to 2010. According to Baird Asset Management, M&A activity is increasing due to, rising consumer and industrial demand for energy efficiency lighting, a steady flow of innovative technologies, improved manufacturing processes, government incentives, and increased interest in SSL and EEL from emerging markets. Large players in the solid-state lighting industry, such as GE, Phillips, and OSRAM Sylvania are looking to build economies of scale, and gain access to technology and intellectual property through purchasing smaller technology development companies. A highly publicized account of this very phenomenon happened on 2007 when lighting giant Phillips bought Color Kinetics.
Color Kinetics, know for such things as providing the lighting for the popular TV gameshow “Wheel of Fortune” (image to left), and lighting up several Las Vegas resort performance stages, was the leader in LED technology. They held critical patents and technology that would have been difficult to attain by any other method than acquisition. Phillips added another 15% to an already overvalued share price according to analysts. Now, in 2011, technology is changing again and green technology analysts predict that we are going to see the “big three” lighting leaders once again on the hunt for acquisition of intellectual property.
There’s no doubt that lighting is a very popular topic in North America, as it accounts for 43% of commercial and 23% of residential electrical consumption in North America. Market research firm Strategies Unlimited provides data showing that demand for LED lighting in North America is expected to increase at a compound annual rate of 35% through 2012. Compare that to a four percent overall growth rate for the lighting fixtures market.
The ability to have complete control over the color and intensity of a Light Emitting Diode (LED) is highly sought after. Light Based Technologies, one of GreenAngel Energy’s investee companies has over a dozen patents, and is producing a family of semiconductors that significantly increases the level of control applied to an LED. Light Based Technologies is young with regard to their production of the chips, making them very attractive for a buyout from a larger company. From GreenAngel Energy’s perspective, a potential exit for LBT could mean a large increase in portfolio value. The shares purchased in LBT were done so when the valuation of the company was significantly lower than it is at present, after another very successful funding round.
References:
Sanderson, Simons, Walls, and Lai, 2008. Lighting Industry Analysis
LEDs Magazine and Baird Co
Strategies Unlimited Market Research on LED Lighting Industry, June 2009