LED Lighting: Competing for the Market, 'Acquisition' Trend Rising

Integration means strength, and mergers and acquisitions are undoubtedly an effective way to integrate resources. In today's globalized economy, cross-border M&A is an important way for enterprises to quickly achieve capital accumulation, resource acquisition, and market expansion. On the eve of the LED lighting era, seizing the LED lighting market that is about to expand through M&A has become the consensus of the lighting industry. After the outbreak of the European debt crisis, European countries generally welcomed Chinese companies to invest, providing excellent overseas M&A opportunities for Chinese lighting companies. Based on this, in 2011, the M&A wave among Chinese LED lighting companies surged, blowing an 'LED M&A whirlwind'. Entering 2012, the M&A momentum became even more intense, with many acquisition targets being world-class enterprises. The M&A wave among Chinese lighting companies will undoubtedly affect the landscape of China's lighting industry and even the global lighting industry. But at the same time, it is also necessary to remind Chinese lighting companies to be purposeful and targeted when investing abroad or acquiring foreign companies, and not to blindly bottom-fish.

　　Topic 1. International Environment: The Best Time for Cross-Border M&A

　　Chinese companies' participation in cross-border M&A is only a matter of the last two decades. From 1992 to 2000, the first peak of outbound investment emerged. After China joined the WTO in 2000, Chinese companies began a second wave of outbound investment. The first phase was mainly exploratory, with M&A on a small scale. The second phase saw M&A peaks rise one after another, and Chinese companies realized that only by integrating into the world economic system could they have stronger survival capabilities. The first Chinese companies to go global were consumer electronics and home appliance companies represented by Lenovo and TCL. Following them, the automotive and financial industries launched a series of M&A deals in 2006 and 2007, attracting market attention. At the same time, resource companies such as oil and minerals also became a Chinese force in the international M&A market. But in the new round of M&A boom, the scope of Chinese companies' M&A targets has been greatly expanded, with a broader vision. News of Chinese companies' M&A in engineering machinery, automobiles, consumer goods, and even luxury goods continues to emerge. From 2010 onwards, the Chinese lighting industry has also gradually appeared on the list of overseas acquisitions. A few brand companies such as NVC Lighting, MLS Lighting, and Elec-Tech Lighting have embarked on the journey of cross-border acquisitions.

　　In 2002, Chinese enterprises' outward investment through mergers and acquisitions was only US$200 million, and by 2003 it had reached US$834 million — a more than fourfold increase with a rapid upward momentum. In 2004, the single deal in which Lenovo acquired IBM's personal computer business alone amounted to US$1.75 billion. According to estimates by Lashham Global Consulting, Chinese enterprises' overseas M&A volume reached US$7 billion in 2004. According to the Ministry of Commerce, in 2011 Chinese domestic investors made non-financial outward direct investment in 3,391 overseas enterprises across 132 countries and regions worldwide, with cumulative direct investment of US$60.07 billion, of which overseas acquisition investment totaled US$23.428 billion. Whether measured by scale or by number, Chinese enterprises' overseas mergers and acquisitions are growing steadily.

　　Entering 2012, Chinese enterprises' overseas investment reached a new climax: on January 31, Sany Heavy Industry spent a huge sum to acquire German machinery giant Putzmeister; on February 3, State Grid Corporation acquired a 25% stake in Portugal's national energy grid company for 3.2 billion yuan...

　　Analysts believe that the current moment is the best opportunity for Chinese enterprises to go global: First, the European debt crisis and the U.S. financial crisis have provided favorable objective conditions for enterprises to venture abroad; second, a wealth of experience has been accumulated through past investment processes in countries in Africa, Latin America and Asia. Therefore, the success rate of enterprises going global at this time is relatively high, and the same holds true for the lighting and illumination industry.

　　Topic 2, Industry Background: Market Weakness Drives Enterprise M&A Upgrades

　　In 2011, LED chips were in oversupply, with prices dropping noticeably, while the application market had not truly opened up; profits of LED companies generally declined. In the second half of the year, news of LED manufacturers going bankrupt was frequently reported, and market penetration remained persistently weak. It was not only small and medium-sized LED lighting manufacturers in China — even large foreign LED lighting brand manufacturers also felt the enormous pressure of operations.

　　Throughout the first half of 2012, news of more LED manufacturers exiting the market continued to emerge, and industry consolidation was inevitable. However, in the LED industry, upstream core technologies remain controlled by foreign companies. With core technologies and huge profits in the hands of foreign enterprises, the development of Chinese LED companies is like walking on thin ice. The industry's current situation — small in scale and geographically dispersed — has constrained corporate growth, leaving Chinese LED enterprises without a clear leader.

　　Fortunately, the imminent arrival of the LED lighting era is prompting upstream and downstream enterprises to join forces to capture market share. To expand their competitive market reach and strengthen their core competitiveness, companies with capital advantages have begun to actively pursue resource integration, attempting to consolidate industry resources through mergers and acquisitions, and to broaden their product lines into different fields through acquisitions, in order to consolidate and enhance their market position.

　　In this broad industry environment, the wave of mergers and acquisitions in China's LED industry will intensify in the future, with increasingly evident mutual cooperation intentions between enterprises, making alliance-based development the mainstream model. At present, international chip giants are continuously extending downstream or seeking strategic cooperation with partners in packaging and applications. Traditional decorative lighting brand manufacturers are also actively transitioning into the LED industry, pursuing full industry chain integration — from materials, epitaxy, chips, packaging, and applications to channels and brands — to get a share of the pie. Meanwhile, enterprises engaged in vertical integration of LED packaging and applications are placing greater emphasis on dual-track development: on the one hand, striving for independent R&D and expanding upstream into epitaxy and chips; on the other, leveraging their existing sales networks to actively build proprietary brands and channels.

　　　　Topic 3. Industry Trends: An "Acquisition Wave" Sweeping Through the LED Industry

　　As early as the 2008 financial crisis, Silan Group had already successfully "gone global," acquiring a Canadian sapphire factory from Honeywell, a U.S. Fortune 500 company; Luming Group merged with the optoelectronics business unit of AXT, a U.S. compound semiconductor luminescent materials producer; Sunlit Lighting had also long taken the lead in tapping overseas LED lighting markets through acquisitions. It successively acquired a 50% stake in Hangzhou Hanguang Lighting for RMB 13.5 million, and had also acquired a 30.188% stake in Japan's LIREN company. Missing early opportunities in the LED market could well mean losing ground in the entire lighting market in the future. In 2011, international lighting giants unleashed an LED "acquisition wave," with some financially strong companies consolidating their market positions through mergers and acquisitions, alliances between leading players, and vertical integration of the industry chain. Following Depu Technology's August acquisition of LED lamp maker Pacific and Texas Instruments' completion of its acquisition of National Semiconductor on September 23, on July 1, 2011, OSRAM announced the completion of its acquisition of German lighting company Siteco, and appointed former Siteco CEO Klaus-Gunter

　　Vennemann is the head of Osram's professional lighting business group. Subsequently, GE Lighting, CREE, Philips, Japan's Endo Lighting, and Berlin-based LayTec all announced acquisition news, aiming to acquire technology or enter the LED market.

　　LED industry giants began in 2011 to focus on the future, continuously accelerating the deployment of LED lighting through acquisitions, mergers, expansions, and internal integrations, conveying to the market their confidence in the future of the LED lighting market, while also indicating that another great era of LED lighting is not far off.

　　Industry consolidation has undoubtedly become an industry trend, and the situation in which the strong grow stronger has been fully demonstrated. Whether targeting technology or distribution channels, consolidation is aimed at welcoming the imminent era of LED lighting. GE Lighting announced the formal completion of its acquisition of Lightech last September. Mary-rose Sylvester, President and CEO of GE Lighting, stated: "The completion of the acquisition of Lightech, a global leader in LED electronic drivers, has brought us top-tier professional talent. The company's drivers meet the demand for high-efficiency power supply and are an indispensable part of further optimizing the GE Lighting LED system. Like GE Lighting, the Lightech team enjoys an outstanding reputation for innovation and quality, adding a powerful force to GE's leading team of technology and design talent."#p#分页标题#e#

　　The rapid development of an emerging industry always goes hand in hand with the continuous changes in the corporate landscape, and the semiconductor lighting industry is no exception. It can be said that it is precisely strategic cooperations such as mutual mergers and acquisitions between enterprises that have propelled the development of the global semiconductor lighting industry. The continuous growth of enterprises has brought more technological innovation breakthroughs and an increasingly mature market scale. From numerous M&A cases, M&A in the LED industry is mainly based on the following ideas: 1. Large international enterprises use M&A to enter the semiconductor lighting field, maximizing the extension of the industrial chain to achieve diversification strategies and occupying a leading position in industrial development to maximize profit margins. 2. Small companies and rising stars often adopt horizontal mergers, with complementary advantages, using integration to strengthen themselves and enhance core competitiveness. 3. Avoiding restrictions on patent property rights through mergers, partial acquisitions and other methods to gain market initiative.