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17 December 2009


3S to acquire optical telecom component firm Avensys Inc

3S Photonics of Nozay, France has entered into a €6.5m share purchase agreement with Avensys Corp of Montreal, Quebec, Canada to acquire its sole operational subsidiary Avensys Inc (including its two divisions Avensys Technologies and Avensys Environmental Solutions) and ITF Laboratories Inc (in which Avensys Corp owns a 42% stake, with most of the rest belonging to the Canadian State). The deal is expected to close in January.

The acquisition corresponds to the implementation of 3S’ external growth strategy, which was planned in July after it raised €13m from three investment funds: €2.5m ($3.49m) from Alto Invest, €450,000 ($628,000) from Midi Capital, and €10m ($14.1m) from the French government’s Strategic Investment Fund (Fonds Stratégique d’Investissement, or FSI, formed in November 2008 to help key companies amid the financial crisis).

3S was founded in 1994 as Alcatel Optronics S.A. (a subsidiary of the Alcatel group) and acquired in 2003 by Avanex Corp of Fremont, CA, USA, becoming Avanex France S.A. In April 2007, it was bought by entrepreneur Alexandre Krivine (becoming chairman & CEO) and Didier Sauvage (former director of Avanex France) and renamed 3S Photonics. The firm designs and manufactures both active optical components (incorporating gallium arsenide and indium phosphide optoelectronic laser chips fabricated in-house at Nozay, France) and passive optical components based on fiber Bragg gratings, for use in discrete modules for high-speed telecom networks, as well as providing epitaxial and wafer processing foundry services. Staffing is 160 and revenues were €23.04m for fiscal 2009 (to end-June).

With staffing of 200, Avensys realized turnover of $23m in the fiscal year to end June. Avensys Technologies designs and makes optical components, modules and fiber Bragg gratings for the telecom market as well as high-power devices, sub-assemblies and packaged fiber-based sensors for the industrial market. Avensys Environmental Solutions provides the Canadian market with environmental monitoring solutions and services for air, water, soil and geo-structures. ITF Labs develops integrated photonics solutions as well as components and fiber-based systems for fiber lasers and optical sensing applications.

“This is an important and necessary step for Avensys Inc,” says Avensys Corp’s CEO John Fraser. The deal follows Avensys Corp’s announcement earlier this year of the hiring of a financial advisory firm to assist it in reviewing and evaluating its financial and strategic alternatives. “Given Avensys’ continuing default under its financing agreements, Avensys’ board of directors concluded that the transaction was the best possible solution for the business,” Fraser adds. “Combining the operations of two businesses with leading-edge and complementary technologies maximizes technological synergies, operational consolidation and opens up bigger market prospects for Avensys Inc and 3S.”

Integration of Avensys should help 3S to build a more balanced and comprehensive portfolio of activities, consolidating its offerings in optical components, filters and packaging for both the industrial laser and telecoms markets, as well as providing expertise in environmental management solutions.

3S should also benefit from significant expansion of its R&D capacities. Currently, the firm invests 15% of its revenue in R&D (compared with the average in France of 3%). With Avensys, R&D staffing should exceed 70 (more than 20% of the overall combined workforce). The Canadian State should also contribute to financing R&D, in the form of a tax credit granted to ITF Labs (of almost CDN$1m per year), enabled by the legal and financial structure of ITF Labs.

3S says that, with 95% of its turnover realized abroad (mainly in the Asia-Pacific), the acquisition is extending its perimeter of activity, complementing and strengthening its know-how and bolstering its client portfolio in international markets, as well as allowing the firm to invest in North American production and distribution of optical components (particularly in the submarine telecoms market).

With the integration of Avensys, 3S expects a cumulative turnover of US$70m in the next fiscal year. It also expects significant synergies, with additional EBITDA (earnings before interest, taxes, depreciation, and amortization) of more than US$3m for 2012. The ultimate aim is to achieve sufficient critical mass for annual turnover of €100–150m.

See related items:

3S maintains positive cash flow despite 10% annual revenue drop

3S raises €13m as investors back French fund

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