LED market heats up with LSG Lamina buy-out

Consolidation in the lighting industry continued this week with the acquisition of Lamina Lighting by US LED maker Lighting Science Group (LSG) Corporation.

LSG announced on Tuesday that it will purchase rival Lamina for $4.5m in cash. A further payment of up to $10.5m dollars in the second quarter of 2010 may follow depending on future sales of Lamina products.

The so called "earn-out" payment probably relates to the relatively low price that LSG is offering for Lamina given investment in the company to date. Lamina secured around $16m worth of financing over the last three years following a $9m investment from Granite Global Ventures, Morgenthaler Ventures and SpaceVest in June 2005, and another $7m from Morgenthaler and others in April 2007.

LSG has also revealed that, despite the credit crunch, it has had to secure extra funding in order to bankroll the Lamina acquisition in the form of a $20m line of credit from the Bank of Montreal. The loan is in turn being guaranteed by Pegasus IV, an investment fund managed by LSG's major shareholder and private equity fund Pegasus Capital Advisors. Pegasus Capital Advisors owns the majority stock in LSG through one of its portfolio company LED Holdings.

Commenting on the announcement LSG's chairman Govi Rao said he was pleased that in "today's challenging credit market", his company was able to secure funding from Pegasus and the Bank of Montreal. He added that the purchase of Lamina would also give LSG access to an "established global supply chain".

Speaking to BusinessGreen.com earlier this year, Rao admitted that the company had faced supply issues and even turned away customers. "We are constantly struggling to meet demand. We are having to turn down requests due to supply-chain issues," he said.

The buy-out is the latest acquisition by LSG as the company jostles for position in an increasingly competitive market. In April, LSG announced the acquisition of Dutch rival Lighting Partner BV for $5m in cash and around $22m in shares.

LSG is not alone on the acquisition trial. In February this year another US LED specialist CREE announced it was buying rival LED Lighting Fixtures while electronics giant Philips, one of the leading lighting companies in the world, has purchased four LED companies over the last few years.

Despite the flurry of M&A activity in the LED space, there are accusations of hype. Although it is claimed that LED bulbs use about 15 per cent of the energy required by a standard tungsten incandescent bulb, they are still extremely expensive and therefore only common in commercial premises. There are plans to use LEDs to light up the Empire State Building in New York, for example.

However, advocates of the technology maintain that costs will come down as manufacturers begin to exploit economies of scale, making it a viable technology for both business and domestic customers.