Acquisition Synergies Expected to Help MLS and LEDVANCE Shine Brighter

Due to a major asset restructuring, from July 18, 2016, shares trade of MLS, China’s leading LED packaging manufacturer, remained suspended until May 2, 2017. MLS announced it would spend up to RMB 4 billion (around US$580 million) to acquire the whole ownership of Guangdong Mingxin Optoelectronic, which holds a 100% stake in LEDVANCE. By doing so, MLS would gain full control of LEDVANCE, originally Osram’s lamps and lighting unit. This partnership is expected to create synergies in manufacturing, distribution, R&D, and branding, offering both sides important competitive advantages in the post LED lighting era.
 
 
MLS acquired Guangdong Mingxin Optoelectronic
 
MLS decided to finance the RMB 4-billion acquisition of Mingxin Optoelectronic, mainly by issuing new shares to shareholders of Mingxin and supported by cash payment. It also raised funds through non-public issuances of shares to up to 10 investors. Sun Qinghuan, chairman of MLS, remains to be in charge of the company.
 
The exact amount Mingxin paid to obtain 100% stake in LEDVANCE was not disclosed. But according to best estimate assumption on the day the deal was completed, the price was around 485.7 million Euro.
 
 
Acquisition synergies turn a new page for LEDVANCE
 
The long-awaited sale of LEDVANCE to the Chinese investment consortium, consisting of the strategic investor IDG Capital, MLS, and Yiwu State-Owned Assets Operation Center (Yiwu), was finally completed on March 3, 2017. After only two months, acquisition synergies have already emerged. Thanks to MLS’s acquisition of Sunny World (Shaoxing) Green Lighting, currently the largest manufacturer of LED filament bulbs in China, LEDVANCE will be able to ramp up production of this highly demanded product. It is estimated that LEDVANCE will be able to sell around 30 million to 40 million LED filament bulbs in 2017, surpassing other global brands.
 
According to LEDinside’s statistics, over 80% of LEDVANCE’s revenue is in North America and Europe, with the rest of the world representing only less than 20%. However, this presents an important area for future growth, especially in emerging market. LEDinside estimates that, supported by government policies, mega projects and economic development, LED lighting is booming in emerging markets. In fact, an important backbone of Philips Lighting’s success in the global lighting market is due to its early expansion to emerging markets like China, India and Indonesia, offering it competitive advantages over rivals like Osram and GE.
 
The partnership between MLS and LEDVANCE can create synergies in manufacturing and design of LED pre-materials, which will further improve LEDVANCE’s cost position for it to better expand market reach. LEDVANCE recently won an Indian government tender to supply around 20 million LED light bulbs, which is an important achievement in the industry. Leveraging MLS’s manufacturing capability, LEDVANCE is expected to continue to grow in the emerging markets, which will help boost its overall performance.
 
Another major growth driver is LED tube business. In the past, LEDVANCE could not compete with rivals in the LED tube market, especially in fast-developing countries like China and South East Asia. Through MLS, LEDVANCE will gain access to cost-efficient and powerful LED components and can then strengthen its LED tube business. Besides, LED tubes are sold mainly to wholesalers, so LEDVANCE can leverage its advantage as a leading brand to seal business deals.  
 
Optimized strategies: LEDVANCE will shift focus to branding
 
Influenced by the robust corporate culture of its former parent company Siemens, Osram has been focusing on production and manufacturing to deliver high quality products. However, in the future, since manufacturing is an area that MLS excels at, LEDVANCE can focus more on branding, marketing, R&D and innovation. In addition, it can take full advantage of its global manufacturing bases, plus pre-materials and components provided by MLS, to do local assembly, which will help LEDVANCE to better satisfy various local demands and expand its market presence.
 
Currently, the percentage of LEDVANCE’s traditional lamps business is still greater than that of LED. Thus, MLS will be a key player in facilitating LEDVANCE’s transition from tradition lighting to LED business. Judging by the synergy benefits arisen so far, the future looks bright for LEDVANCE. In addition to capturing near-term synergy opportunities, in the mid-to-long term, if LEDVANCE can expand product portfolio, improve channel development and open up new markets, it will have the opportunity to secure its position in the new era of LED industry.
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