Richmond-based Tech Company Photon Control Agrees to be Acquired by MKS Instruments for $387 Million in All Cash TransactionWednesday, May 12, 2021
All Cash Transaction Values the Company at approximately $387 million
Richmond, BC, May 12, 2021--(T-Net)--Photon Control Inc. (TSX: PHO), a leading manufacturer of fiber optic measurement solutions, announced today that it has entered into an arrangement agreement with MKS Instruments, Inc. (NASDAQ: MKSI), a global provider of instruments, systems, subsystems and process control solutions based in Andover, Massachusetts, pursuant to which MKS will acquire Photon Control for $3.60 per common share in an all-cash transaction valued at approximately $387 million.
Photon Control also announce its financial results for the three months ended March 31, 2021. All figures herein are stated in Canadian dollars.
Overview of Transaction with MKS
Key Transaction Highlights
Neil McDonnell, Chair of the Company's Board of Directors and Special Committee
Neil McDonnell, Chair of the Company's Board of Directors and Special Committee, commented: "We are pleased to announce this Transaction with MKS, which offers our shareholders a compelling opportunity to monetize their investment at an attractive valuation and significant premium to the current and historical trading price of the Company's shares. The Transaction is also expected to accelerate the execution of our strategic plan, enhance access to additional customers and markets and provide efficiencies from greater scale. After careful deliberation, the Special Committee and the Company's Board of Directors have unanimously concluded that the Transaction is fair to the Company's securityholders from a financial point of view and is in the best interests of the Company and its employees."
The total cash consideration of $3.60 per share represents a premium of 16% to the closing price of $3.11 on the Toronto Stock Exchange on May 7, 2021 and a premium of 26% to the volume weighted average price for the 30 trading days ended May 7, 2021.
The Transaction will be carried out by way of a Court-approved plan of arrangement, pursuant to which MKS will acquire all the outstanding common shares of Photon Control.
The implementation of the Arrangement will be subject to the approval of at least 66 2/3% of the votes cast by Photon Control securityholders present in person or represented by proxy at the annual and special meeting of Photon Control securityholders, and the receipt of applicable approvals from the Supreme Court of British Columbia.
The Arrangement Agreement also provides for the payment of a termination fee of $15.5 million to Photon Control in the event the Transaction is terminated in certain specified circumstances, including if MKS does not exercise its right to match in the context of a superior proposal supported by Photon Control. The completion of the Arrangement is not subject to any financing condition.
All directors and executive officers of Photon Control, holding approximately 1.0% of the issued and outstanding shares of Photon Control as of the date hereof, have entered into voting and support agreements in favour of MKS pursuant to which, among other things, they have agreed to vote their Photon Control securities in favour of the Transaction.
NIGEL HUNTON, PRESIDENT, CEO AND DIRECTOR
Photon Control Board Approval
Photon Control's Board of Directors established a Special Committee of independent directors to oversee the transaction discussions and the Arrangement.
The Special Committee has recommended to the Board of Directors, and the full Board of the Directors unanimously approved the Transaction and the Arrangement and passed a resolution to recommend that Photon Control securityholders vote in favour of the Transaction.
Echelon Capital Markets, financial advisor to Photon Control, has provided a fairness opinion to the board of directors of Photon Control that, subject to the assumptions, limitations and qualifications set out in such fairness opinion, the Consideration to be received by Photon Control shareholders pursuant to the Transaction is fair from a financial point of view to Photon Control shareholders.
The Arrangement Agreement will be available on SEDAR under Photon Control's profile at www.sedar.com within 10 days following the date of this press release.
The Arrangement is expected to close during the third quarter of 2021.
First Quarter 2021 Financial Results
Highlights for the first quarter ended March 31, 2021 were as follows:
Total revenue for Q121 increased to $18.0 million (Q120: $17.3m, Q420: $14.9m) which represents a 4% increase over Q1 2020 and 21% from Q4 2020. The Company's revenues are strongly influenced by overall semiconductor capital expenditures on WFE as electronics and data become an increasing part of everyday life. The Company's performance was aided by strong market demand as the global semiconductor market reacts to chip shortages and increased pressure on technological advancements in artificial intelligence, 5G, and vehicle electrification, active safety, and autonomous driving.
Gross profit for Q121 was $10.4 million (Q120: $10.6m, Q420: $8.1m) with a gross margin of 58% (Q120: 61%, Q420: 55%). Gross margins were positively influenced by strong sales but were partially offset by a weakening US dollar relative to the Canadian dollar and additional investments made to increase our manufacturing capabilities as we manage our on-time delivery strategies and sales readiness.
Operating expenses for Q121 increased to $5.4 million (Q120: $4.1m, Q420 $5.0m). The Company has focused on additional investment into product development and strengthening our research and development initiatives, improving our ability to service our existing client base, and exploring new market opportunities. These investments are a critical part of the Company's strategy that focuses on new product development and expanding our sensing technology to higher levels of precision and accuracy and sustaining growth ahead of the semiconductor industry.
Adjusted EBITDA for Q121 was $5.0 million or 28% of revenue (Q120: $7.0m or 41%, Q420: $3.7m or 25%). The decrease for the quarter was primarily due to an increase in contingent consideration as a result of higher forecasted revenues, investment in product development and sales and marketing costs for servicing our customers to maintain and leverage the revenue momentum gained from a successful 2020 year.
Net income for Q121 was $3.0 million, or $0.03 per share (Q120: $6.6m or $0.06 per share, Q420: $1.2m or $0.02 per share). Net income performance for Q121 was lower than the prior comparative quarter as Q1 2020 benefitted from a significant gain on foreign exchange translation not repeated in Q1 2021. Additionally, the current quarter included higher investment into research and development and sales and marketing efforts as key areas of the Company's strategic focus.
Cash and cash equivalents at March 31, 2021 were $44.2 million (December 31, 2020: $48.4m). The cash outflow was primarily due to net cash used in operating activities of $3.5 million, of which, $5.0 million related to a payment to settle the Company's 2020 income taxes payable position.
1 The Company defines adjusted EBITDA as earnings before finance income, accretion expense, income taxes, depreciation, amortization and foreign exchange gain or loss. Please refer to "Non-GAAP Measures" in the annual MD&A for the period ended December 31, 2020 for a discussion of non-GAAP measures used by the Company.
About Photon Control Inc.
Photon Control Inc. designs, manufactures and distributes a wide range of optical sensors and systems to measure temperature and position. These products improve performance and enable innovation for our customers and are used in the semiconductor and other high-technology industries.
Photon Control Inc.'s high-quality products provide industry-leading accuracy, reliability and quality in the most extreme conditions and are backed by a team of experts providing a variety of on-site and remote services including custom design, installation, training and support.
The Company is headquartered in an ISO 9001:2015 manufacturing facility in Vancouver, BC, has manufacturing, sales and engineering offices in California and a sales distribution network around the globe. Photon Control Inc. is listed on TSX, trading under the symbol "PHO". Additional information about the Company can be found at www.photoncontrol.com/investors/
About MKS Instruments, Inc.
MKS Instruments, Inc. is a global provider of instruments, systems, subsystems and process control solutions that measure, monitor, deliver, analyze, power and control critical parameters of advanced manufacturing processes to improve process performance and productivity for its customers.
MKS' products are derived from its core competencies in pressure measurement and control, flow measurement and control, gas and vapor delivery, gas composition analysis, electronic control technology, reactive gas generation and delivery, power generation and delivery, vacuum technology, lasers, photonics, optics, precision motion control, vibration control and laser-based manufacturing systems solutions.
MKS also provides services relating to the maintenance and repair of its products, installation services and training. MKS' primary served markets include semiconductor, industrial technologies, life and health sciences, and research and defense. Additional information can be found at www.mksinst.com.
A management information circular relating to the annual and special meeting of securityholders of Photon Control and containing further details regarding the Arrangement and the Arrangement Agreement will be mailed to Photon Control securityholders and made available on SEDAR under Photon Control's profile at www.sedar.com.
The Arrangement Agreement provides for, among other things, customary non-solicitation covenants from Photon Control, including customary "fiduciary out" provisions that allow Photon Control to accept a superior proposal in certain circumstances and a five-business day "right to match period" in favour of MKS.
Echelon Capital Markets is acting as financial advisor to Photon Control. Blake, Cassels & Graydon LLP is acting as legal counsel to Photon Control.
Greenhill & Co. is acting as financial advisor to MKS. Stikeman Elliott LLP is acting as legal counsel to MKS.
Annual General Meeting
The previously announced annual general meeting of the Company's shareholders planned for June 29, 2021 will be modified to an annual and special meeting of Photon Control's securityholders where, in addition to the business of an annual meeting of shareholders, Photon Control's securityholders will be asked to consider and vote on the resolution implementing the Transaction. The scheduling of such meeting will be communicated to all Photon Control securityholders in due course.
Financial Statements and Management's Discussion and Analysis
This news release should be read in conjunction with the Company's condensed interim financial statements and related notes, and management's discussion and analysis for the three months ended March 31, 2021, copies of which can be found under the Company's profile on SEDAR at www.sedar.com.
This news release contains "forward-looking statements" within the meaning of applicable Canadian securities legislation. These statements generally can be identified by use of forward-looking words such as "may", "will", "could", "would", "should", "might", "expect", "estimate", "anticipate", "intend", "consider", "believe", "plan", "project", "assume", "strategy", "goals", "objectives", "potential", "possible", "confident" or "continue" or the negative thereof or similar variations. Such forward-looking statements concern the business and anticipated financial performance of the Company (including, without limitation, the Company's growth outlook) and the Transaction (including, without limitation, in respect of the Court approvals to be obtained in connection therewith, the approval of the Transaction by Company securityholders and the expected timing of closing of the Transaction).
These forward-looking statements are based on certain factors and assumptions, including, without limitation: the Company's ability to develop, manufacture and sell new products that meet the needs of its customers and gain commercial acceptance; the Company's ability to continue to sell its products in line with expected quantity, price and delivery times; the Company's ability to attract new business; continued and future demand for the Company's products; continued sales to the Company's major customers; the Company's operations not being adversely affected by supply, operating, cyber security, litigation or regulatory risks; the Company's ability to react to the cyclical nature of the semiconductor industry; the Company's ability to enhance revenue diversification and open new market opportunities; and, the Company's expectations regarding market risk, including interest rate changes, tax changes and foreign currency fluctuations; and, in respect of the Transaction, the Company's ability to meet all condition precedents set forth in the Arrangement Agreement (including that there be no material adverse effect on the Company before closing of the Transaction) prior to the outside date set forth therein, the Company's ability to secure the required Court approvals in connection with the Transaction and the approval of the Transaction by Company securityholders.
Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors which could cause actual events or results to differ from those expressed or implied by the forward-looking statements, including, without limitation: risks related to the completion of the Transaction, including the failure to obtain securityholder or Court approvals in connection with the Transaction; uncertainties relating to the market for the Company's products and maintaining a stable level of orders; fluctuations in revenue as a result of volatility in the markets and product mix; risks relating to the Company's present reliance on its major customers for the majority of its sales; risks relating to the Company's reliance on the financial health of and timing of cycles in the semiconductor industry; risks relating to the development of competing technologies and the possibility of increased competition; the effect of slow growth in the United States, the Company's principal market, as well as other economies and other economic trends and conditions in the markets that the Company and its customers serve; risks associated with the spread of the COVID-19 virus; risks associated with the adverse impact of climate change; risks associated with technical difficulties or delays in product introductions, improvements, implementation; uncertainties in product pricing or other initiatives of the Company and its competitors; uncertainties in factors that may result in a reduction in capital expenditures and/or delayed buying decisions affecting demand for the Company's products; risks relating to currency fluctuations, particularly between the Canadian and United States dollars; risks in pursuing additional development projects to support existing customers or pursue other business opportunities; and such other risks as are identified in the Company's Annual Information Form and other disclosure documents filed on SEDAR at www.sedar.com.
The foregoing assumptions, risks and uncertainties are not exhaustive of the items that may affect our forward-looking statements. Should underlying assumptions prove to be incorrect or one or more of these risks and uncertainties materialize, actual results may vary materially from those described in the forward-looking statements. The Company's forward-looking statements are based on beliefs, expectations, and opinions of management on the date the statements are made.
For the reasons set forth above, readers should not place undue reliance on forward-looking statements. The Company undertakes no obligation to update or revise any forward-looking statements included herein if these beliefs, estimates and opinions or other circumstances should change, except as otherwise required by applicable law.
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