Good deal hunting at Applied Materials

Applied Materials can’t seem to leave the solar equipment business alone at the moment, as it continues its acquisition trail. The latest is Baccini S.p.A for a cool $330 million in greenbacks.
The news sent me scurrying to dig into the market occupied by Baccini, and I must admit that at first I couldn’t see why AMAT has spent that much on a small company. Later on in a conference call to discuss the acquisition, some interesting aspects of the deal emerged. 

As I had thought, the company is relatively very small with only 60 full-time employees and the same number of sub-contractors listed on the books.

Revenues were approximately $78 million in 2006!

But before you go scurrying away to calculate the price-to-earnings ratios etc., AMAT noted that it paid about 4x revenues, as the sales expected from Baccini in 2007 will be substantially higher than those of 2006!

It was also noted that Baccini had about 70 percent market share primarily in the back-end solar cell metallization area, though this figure was touted by one of the financial analysts on the call.

However, it transpired that the Total Available Market (TAM) for Baccini’s products within the solar cell market was put at $350 million per annum and that it was currently engaged in about $150 million of that sum.

Unlike some solar equipment suppliers, margins at the Italian equipment supplier were ‘attractive,’ though an exact figure wasn’t revealed due to Baccini’s being a private family-run business.

It’s not a cash and carry deal either, as Mark Pinto noted that the family is staying on and will work within the solar group at Applied.

Some financial analysts got all excited about AMAT progressing to offer fully integrated solar cell manufacturing lines, but this was dispelled several times by Pinto as he reiterated that the round of acquisitions are designed to enable some serious cost per watt reductions. These reductions are in areas that AMAT can in the main add technology knowledge to in order to boost those efforts from its experience in the semiconductor industry.

This suggests that there is plenty of equipment in the line including commodity-type tools for which the margins are very low!

Baccini would seem to have the technology, fully automated and integrated line solutions and a very good reputation. However, like many non-Japanese suppliers, Baccini has no penetration in that big market but is dealing with a very high number of solar cell manufacturers, which will certainly be leveraged by AMAT over the coming year.

I didn’t get the impression that more acquisitions would not be taking place, but finding the good deals may prove a little more challenging going forward!

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