Cree’s SMART Deal

SMART Global Holdings, the company that is acquiring Cree’s LED business is pretty smart, because the deal only requires $50M in cash. No wonder they spell their first name in all caps.

Your humble editor listened to the Cree investor call as well as the SMART investor call and here is the deal by the numbers:

  • $300M deal
    • $50M Cash
    • $125M 3-year note from SMART
    • $125M earn out if certain goals are met
      • $75M for reaching income and margin number (at 100%)
      • Up to $50M for exceeding
  • 2000 employees
    • 1600 in packaging, testing, and assembly in China
    • 200 engineering
    • 200 all other
  • $433M in FY 20 Sales
    • 5000 customers worldwide (the slide said 1000+)
    • 60% through distribution, 40% direct
    • 50% of Sales in Asia, 25% in EU and 25% in Americas.
    • 58% General Lighting, 30% Specialty Lighting, 11% Large Video Screens and 1% Automotive (on 2019 sales)
  •  $91M in Gross Profit (21%GM)
  • 2000+ patents

Mark Adams is the CEO of SMART Global Holdings and we know him from his role as the former CEO of Lumileds. Mark indicated that he knows Cree well and this was his second due diligence with them.

Cree has been moving away from silicon carbide to sapphire.  It is our understanding that silicon carbide has many advantages over sapphire but is significantly more expensive. Cree scientists had tremendous breakthroughs and figured out ways to perfect the sapphire substrate for use with LEDs giving Cree a significant cost advantage.  It also allows capacity for silicon carbide to be shifted to the more profitable Wolfspeed products.  In the SMART investor call, Mark Adams said they will obviously go forward with the move to sapphire which should give them the lowest landed cost in the world.

Craig Irwin of Roth Capital asked Cree about their pipeline and CEO Greg Lowe explained that the LED pipeline did grow over the past year, but the Wolfspeed pipeline grew substantially faster, which he attributed to their deal with Arrow Electronics. Arrow picked up sales in several countries where Cree does not have salespeople.

Cree’s stock closed Friday at $71.38. It shot up to over $77 in the first hour of trading and closed at $73.97.  Essentially Cree’s price has doubled since April. SMART Global holdings closed Friday at 25.38 and opened today at $27.00. It closed virtually unchanged from Friday.

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