New Parent’s Share Run-Up a $125M Boon to Firm’s Former Shareholders
CR Technology chief Richard Amtower is living testimony that one of the most important parts of making Plan A work is staying open to Plan B.
When he wanted his Laguna Niguel company’s 50% annual growth rate last year to translate into that ever-elusive “shareholder value,” he assumed that, like many similarly positioned high-tech firms, it meant going public,sentiments he made clear 15 months ago in a front-page story in the Business Journal.
Instead, an obscure but fast-growing Silicon Valley firm called Photon Dynamics Inc. snatched up the company, and thanks to a stock run-up of more than $60 per share to around $75 last week since the companies announced the deal (more than half of that since it finalized in December), the move has nearly quadrupled the value of CRT investors’ holdings, creating more than $125 million in new wealth for his stakeholders.
“We looked at the amount of money and time and effort that would be required to do an IPO, and we just decided it may not be the best approach,” says the 56-year-old. “Our shareholders certainly did better.”
CRT makes $100,000-and-up X-ray and optical equipment used to inspect chips and electrical gear for defects on the manufacturing line. Traditionally, factory workers have completed such tests manually, a process that costs manufactures time and money in an increasingly competitive segment. Most of CRT’s customers operate out of North America, and they include some of the largest players in the business.
The company also serves contract manufacturers, which are expected to make up a bigger portion of the sector as chip companies outsource more of their grunt manufacturing and focus on chip design.
Rise in Demand Expected
Photon Dynamics, which approached CRT after seeing an article about it in trade publication Industry Week, makes similar inspection equipment in the $1.5 million range for the flat-panel display market, which is expected to boom this year as manufacturers begin to invest in the popular displays.
Though expensive compared to standard cathode-ray-tube displays, liquid-crystal display flat panels have become popular for their low power consumption, diminutive size and ease on the eyes. And as mobile computers such as laptops and handheld devices like the PalmPilot become increasingly ubiquitous, capital equipment demand is expected to enjoy double-digit growth for years.
“This is like semiconductors 30 years ago,” Photon chief executive Vince Sollitto told a handful of investors and analysts last week who had gathered at an industry trade show in Anaheim, about a half-mile from Disneyland. “This ride is going to be bigger than that roller coaster down the street.”
Dismissing Computers
Though investors have urged him frequently to look into the much larger North American semiconductor market, Sollitto is confident that capital investment growth for flat-panel displays is going to be far larger, dismissing computers themselves as “the little white box nobody remembers.”
Officials with both companies hope Photon’s relationships with flat-panel display makers, which largely operate in Asia, will make it easier for CRT to expand its customer base to overseas manufacturers. Likewise, CRT’s grip on the North American market could broaden Photon’s base here.
Amtower, now vice president of Photon Dynamics and president of CR Technologies as a subsidiary, acknowledges that it isn’t clear how much an IPO would have netted CRT’s stakeholders.
The company already had been recognized by Industry Week as one of the fastest-growing companies in the nation. And considering that growth came in the midst of one of the longest slumps in the history of chip making, some could argue that with a sector turnaround in full swing, CRT would have enjoyed a spectacular public offering, even without a dot-com at the end of its name.
Stakeholder Turnover
Before the acquisition, CRT’s stakeholders included management, with 20%, and Inco Ltd. and Hall Capital Management, which together held a 65% stake. Individual investors held the rest.
Now, after a January offering in which an institutional investor sold most of its shares, major stakeholders in the merged company include Kern Capital Management with 6.3%, and Fidelity Management with 4.7%.
Amtower insists he hasn’t gotten rich yet from the merger, and many of his shares are locked up in what is a customary stipulation for management shareholders. But even though he now plays second fiddle to Sollitto, Amtower owns more of the company than any of his fellow executives with 1.8% of the company, including exercisable options. Sollitto owns 1.6 %.
“I’m not complaining,” Amtower says.
Most of CRT’s directors stepped down after the merger, but only a few employees departed,according to Amtower, for unrelated reasons. The Orange County operation employs about 54 people and reported about $15.5 million in sales last year. Combined with CRT’s operations and adjusting for differences in their fiscal calendars, Photon reported $45 million in sales and employs about 170 people.
With a turnaround in the semiconductor sector fueling demand for manufacturing equipment, most analysts are bullish on the prospects of equipment suppliers such as the newly merged Photon Dynamics.
The three analysts who cover Photon give the company a “moderate buy” rating, and Banc of America Securities mentioned the company favorably in a report on capital equipment providers.
CR Technologies has moved to Aliso Viejo to make room for expansion and Amtower expects to hire more people this year.
“We’re lucky these Silicon Valley guys haven’t discovered Orange County,” he says. “We may consider it hard to find and retain good people here, but compared to Silicon Valley, it’s a great place. We can get people from Los Angeles, San Diego or anywhere. Don’t tell anyone.” n
