Essilor has signed a deal to acquire Satisloh, the largest supplier of lens coating and digital surfacing equipment in the world, with market shares of more than 40 percent in both areas. It has agreed to buy this debt-free subsidiary of the Swiss Schweiter Technologies group for €340 million in cash, an amount that is equal to about two times annual sales, 13 times operating profit (EBIT) and 15 times net profit, based on last year's results. The multiples will be lower for this year, according to officials of Essilor, which sees the acquisition being accretive from 2009 onward.
Essilor justifies this bold move with the fact that the development of new products and processes are closely linked in the ophthalmic lens sector. The takeover, which is likely to be completed in the second half of 2008, after approval by regulatory agencies dealing with competition, is regarded as a smart strategic move on the part of Essilor, the world's largest lens manufacturer, and is bound to shake up the market in different ways.
Carl Zeiss Vision, which has been working closely with Schneider Optikmaschinen to develop advanced digital surfacing applications from the start, was rumored to be cancelling all its pending orders from Satisloh, but Beat Siegrist, president of Schweiter and its Satisloh division, denied this. Officials of CZV could not be reached for comment.
An official of Schneider, which has worked closely with Zeiss in the past, could not confirm this rumor. He did not expect any change in his company's relationship with the Essilor group, which is Schneider's biggest overall customer, including its precision optics operations. A top executive of Hoya Vision Care said his company will remain a customer of Satisloh ? not for coating equipment ? if Essilor will help to improve service levels at the Swiss company, particularly in North America.
Essilor as a client represents about 17 percent of Satisloh's turnover, compared with less than 10 percent for other lenscasters. In a conference call with analysts, officials of Essilor made no secret of the fact that their company will likely work more closely with Satisloh in the future in order to optimize processing times and tooling, but stressed that its competitors will be offered new products at the same conditions. Xavier Fontanet, chairman and chief executive of the French group, said the whole industry will benefit from the cooperation.
The combination of the respective R&D departments and other shared resources should lead to innovative and cost-saving solutions that will benefit everybody in the ophthalmic lens industry, including Essilor's competitors, shortening time to market for their development. However, Essilor and its growing stable of independent labs may gain access to new sophisticated and low-cost free-form surfacing technologies before some of their competitors.
While stressing that Essilor had agreed in writing that Satisloh's staff would not share any secrets regarding its own other clients and their operations with the French group, Siegrist said he had convinced a group of about 100 operators of independent laboratories in the USA at a three-day presentation last week to continue to work with Satisloh because of the numerous advantages that will stem from its takeover by Essilor.
Noting that Satisloh spends 4 percent of sales on R&D, Essilor executives said the relationship will be mutually beneficial. The chief operating officer of Essilor, Philippe Alfroid, said Satisloh can make use of Essilor's know-how in lab management software, edging, finishing and consumables, and Essilor will benefit from the expertise that Satisloh can bring to the table in free-form surfacing, in polishing or in sputtering technology for anti-reflective coatings. On the other hand, Essilor is more experienced in hard-coating.
Satisloh will continue to be run as a separate unit, and it will take about three years to develop cost synergies, estimated at €5-10 million a year. Siegrist, who again took directly the reins of Satisloh at the beginning of this year, after the departure of Urs Meyer, will join Essilor's executive committee. Andreas Kunzmann is still expected to become the new chief executive of Satisloh on Aug. 1. but it is still too early to determine how its cooperation with Essilor will be structured at various levels, including the sale and servicing of the two companies' ranges of instruments and consumables.
Essilor says Essilor can help Satisloh to better penetrate the USA and emerging markets. Satisloh has nine subsidiaries around the world. The Americas represented last year 49 percent of its sales, with exceptional growth in coating, Europe 37 percent and Asia 12 percent.
Created by the merger of Satis Vacuum and Loh in 2004, Satisloh claims a share of more than 50 percent in the areas of lens coating and surfacing equipment. Each of these two businesses and two others, precision optics and consumables, represent about one-quarter of the company's sales. The company employs 410 people and has production facilities in Germany and Italy.
Last year, Satisloh had an 11 percent sales increase to 270 million Swiss francs (€167.1m-$260.8), boosted by major orders for coating equipment in the USA, and generated an operating profit of 42 million CHF (€26.0m-$40.6m). Satisloh's sales and margins could well decline this year, however.
Essilor, which accounted for about 17 percent of Satisloh's sales, will gain access to independent labs for its own range of equipment and consumables as an estimated 64 percent of them around the world are clients of the Swiss company.
The acquisition of Satisloh will expand Essilor's equipment and consumables business considerably. Its sales of these products grew by 12 percent in 2006 and by 8.4 percent in 2007, reaching a level of €202 million last year, driven by higher sales of lens edging equipment in Europe.
Bought in 2005, a subsidiary of Essilor in the USA, National Optronics, is the national leader in edging. The group has set up a sales operation for this type of products in China and made other investments recently. It acquired a controlling interest in O'Max Instruments, a Dutch company that supplies optometric instruments and other equipment for optical laboratories and stores under such brands as Topcon, Heine, Oculus, LessStress, CIOM, MSD, Lumos and Ocular.
For Schweiter, which is also involved in semiconductor and textile manufacturing machinery to a small degree, Satisloh represented 65 percent of its total sales and a larger portion of its profits. After organizing the successful merger of Satis Vacuum and Loh, Schweiter had been studying possible new acquisitions in the areas of equipment and consumables in order to gain more critical mass. Essilor itself does not exclude other possible acquisitions in this segment in order to offer more complete services and solutions to optical laboratories, especially in China and other parts of Asia, where the company wants to expand rapidly in the future. Future acquisitions could be in the areas of consumables, software, edging or finishing.
For Essilor, the takeover of Satisloh is the biggest and costliest one of the last three years. Since 2005, the French company has spent a total of €318 million to buy 56 relatively small firms ? mainly labs ? which have added €326 million to its annual revenues. Essilor will use a revolving credit to finance a portion of the new acquisition.
Observers speculate that Essilor wanted to pre-empt the takeover of Satilsoh by a competitor in order to secure the technology for the low-cost direct free-form surfacing of progressive lenses ? a market that is growing by more than 15 percent a year. Satisloh's acquisition by Essilor had been the subject of a rumor in well-informed circles for about a year. The newest rumor is that Essilor is negotiating to buy Signet Armorlite, a U.S.-based company with a strong expertise in back-side progressive lenses that has the Kodak license. Signet Armorlite does not give out figures but is estimated to have generated sales of more than $160 million last year, including more than $50 million in the USA and a similar amount in the UK.