By now, we’ve all heard that bartering is on the rise in the down economy.
Apparently, some businesses are getting into the act, too.
“I’ve never done a deal quite like this,” said Chuck Cargile, chief financial officer at Irvine-based Newport Corp., which recently swapped part of its business with longtime rival San Jose-based Oclaro Inc.
“People talk about it, but we were able to do it,” he said.
Under the terms of the deal, Newport acquired a chunk of Oclaro’s business and vice versa.
Only a very small amount of money changed hands. Newport paid Oclaro $3 million in cash to account for revenue differences between the two businesses.
“Bartering worked in this case,” Cargile said. “With the market what it is today, valuations for M & A; deals are very difficult to target. They had an asset we wanted and we had an asset that they wanted. We said, ‘Lets avoid trying to estimate valuations altogether.'”
Newport deals in an area of technology called “photonics.” It makes specialized lasers that are used in chip manufacturing, scientific research and in medical devices.
Newport also makes photonics tools that manipulate and measure lasers.
Its customers include the government, research labs, schools and makers of specialized equipment used to manufacture semiconductors.
Newport wanted a part of Oclaro’s business that came from its 2004 acquisition of New Focus Inc., which also manufactures and distributes photonics tools.
Oclaro makes a small mechanical part of a laser called a diode.
“New Focus was the odd man out in Oclaro’s business model,” Cargile said. “That small part of their business was competing with us, but isn’t critical to what they do today.”
Newport, in turn, had a factory in Arizona that manufactures diodes.
The Tucson-based site has some 100 workers, saw about $30 million in sales but was unprofitable. Roughly a third of its output was diodes that were built into Newport’s own lasers. The rest were sold to outsiders.
The small diode factory was a pricy asset that Newport was looking to unload.
“That factory is considered small, because to make the diodes it’s a very complex labor and capital intensive operation,” Cargile said. “We weren’t profitable making diodes in Tucson, but they were critical to our business.”
Have you stayed with me this far? Here’s where the bartering comes in.
Newport exchanged its Tucson diode factory for Oclaro’s New Focus business.
The extra $3 million Newport paid to Oclaro was because its factory isn’t profitable.
And Oclaro agreed to supply Newport with diodes at a competitive price.
“We eliminated the fixed cost of the factory and have the supply that we need from Oclaro,” Cargile said.
Oclaro’s New Focus laser products are manufactured in Shenzhen, China, and San Jose.
That’s set to shift to Newport’s Chinese manufacturing site in Wuxi, where output is expected to double.
And Oclaro is most likely moving the bulk of the diode manufacturing from the Arizona plant to its larger factories in Switzerland and Britain.
Newport had tried to buy New Focus years earlier after having its eye on the company for more than a decade. Both times, talks broke down over price.
“We had bumped up against them in the market for two decades,” Cargile said. “We had a tough time trying to figure out what the right value was, so we decided not to focus on that this time around.”
The complex deal was in the works for more than four months.
“Just to do this transaction, we had eight different legal agreements,” Cargile said. “There were a lot of lawyers involved, that’s for sure.”
Licensing Agreement
Quest Software Corp., an Aliso Viejo-based maker of business software, recently inked a deal with Santa Ana’s Ingram Micro Inc., the world’s biggest distributor of technology products, software and consumer electronics.
Ingram Micro is set to distribute Quest’s software, which customizes and boosts the performance of databases and other applications made by Microsoft Corp. and Oracle Corp., among others.
The deal makes it easier for resellers to purchase and resell Quest’s software licenses in the Americas.
Under terms of the agreement, Quest granted Ingram Micro the right to distribute, market and resell its products to a subset of resellers. They, in turn, sell to small and midsize businesses and corporations.
QLogic Hire
Aliso Viejo’s QLogic Corp., a maker of electronics for data storage networks, is building up its executive sales team.
The company recently hired Jim Rothstein, 45, as vice president of North America sales.
Rothstein, a storage industry veteran with nearly two decades under his belt, has held posts at San Jose-based Brocade Communi-cations Systems Inc. and Japan’s Hitachi Ltd.
At QLogic, he’ll be in charge of the company’s sales efforts directly to manufacturers and through resellers in North America.
Rothstein is set to report to another recent hire, QLogic’s Scott Genereux, who was brought on as vice president of worldwide sales and marketing earlier this year.
