Since Chuck Mattera joined II-VI Inc. in 2004, the manufacturer of engineered materials, optoelectronic components and optical systems has completed more than 20 acquisitions.
And he’s embarking on the largest deal yet as II-VI plans to close its acquisition of Finisar Corp. — a similar-sized company with annual revenues of $1.3 billion — this fall.
Mattera, who is now CEO, has overseen all of these deals to increase the company’s global reach, deepen its technology and intellectual property portfolio, and broaden its product roadmap and customer base.
“The board encouraged me to take responsibility for describing and defining a path to diversify II-VI, to enable a sustainable competitive advantage in the markets that it was not in,” he says. “In order to do that, we had to step up acquisitions because these technologies, especially these materials technologies, they can take 10 to 20, even 30 or 40 years to mature.
“So, if you want to keep the engine humming, every once in a while, you need to buy a company that’s already run out the risk and put things in place.”
Assessing the opportunity
Mattera joined the board of II-VI in 2000. The company’s core business was making optics for carbon dioxide lasers, which were increasingly deployed in car and electronics factories for one purpose — cutting steel better than you could with a torch.
“That business grew nicely, maybe two to three times the GDP growth of the world at that time,” he says. “And it grew predictively because laser technology was being adopted, and the more it was adopted, the more optics they needed. But there was a disruption coming into the marketplace. What’s interesting about our business — and I tell our investors and our employees all the time — is that in this business and the markets we play in, you need to be ready to either disrupt or be disrupted.”
IPG Photonics was developing and commercializing fiber lasers to also cut steel. So, Mattera asked: Are fiber lasers an opportunity, a threat or both?
He couldn’t get a clear answer. When he joined the company as a vice president four years later, he asked the same question.
The chairman, who was also the founder of II-VI, and the CEO told Mattera to stop asking people internally. Instead, he needed to look externally, with the board and executives, to make his own assessment.
“I came back and said, ‘It may be a threat, but for sure it’s an opportunity,’” he says.
So Mattera took responsibility for evaluating materials-based businesses. His job was to assess the risk and the opportunity, because often it’s not clear until it’s too late which technologies will win in the market.
A way around
Over the next 10 years, Mattera worked to diversify and grow II-VI, including finding a way to help the company participate in the fiber laser market at higher and lower levels of integration, without going straight against incumbent IPG, which had already established a strong lead.
Mattera describes it as a strategy straight from Sun Tzu’s “The Art of War.”
“He teaches that, among other things, you should not go head-to-head, but you should go around the problem,” he says. “Otherwise you consume all your resources and energy.”
After a decade of buying and building up the businesses, that segment of II-VI was just as large as its original carbon dioxide laser business.
“It took us 10 years, but through acquisition and subsequent growth, investment in R&D and in teams of people, lo and behold, those businesses were the same size,” Mattera says. “I’m really proud of the team here, and the board, especially, for having the patience and the staying power and encouraging us to go step by step but steadily — and that’s what we did.”
During the Great Recession, II-VI found another way to go around an obstacle. The public company wanted to continue its 20-year history of 20 percent annual growth for its revenues and profits.
“We decided that we would go look in China, where the GDP growth rates were still 10 to 12 percent, and the Chinese government was pouring stimulus money into communications,” Mattera says. “We bought a company that had the look and feel of II-VI; it was kind of a Chinese II-VI.”
Photop Technologies had been getting ready for an IPO in 2007, which was put on hold with the downturn. However, one-third of its shareholders wanted to sell.
“Long story short, we bought them,” Mattera says. “They provided us with a platform in China, a segue into this marketplace. When we bought them, they had $66 million in trailing 12-month sales. That business, in the year we just finished, did over $600 million and has provided the strength of the communications business of II-VI.”
II-VI’s ability to stay patient with its fundamental understanding of both technology and markets gives it confidence to stay with acquisitions even if it has had to wait a year or two to achieve certain levels of performance, Mattera says.
Sometimes the risks will seem too high, such as II-VI’s 2013 acquisition of a distressed Switzerland-based semiconductor laser business from Oclaro Inc.
“The investors (questioned) buying this business in the most expensive city for manufacturing in the world from a nearly bankrupt company,’” Mattera says. “They didn’t really understand what I understood: that this was a world-class company and that we would be able to combine it with what we were doing and over time, we would help the team become better.”
The semiconductor laser business is not only part of II-VI’s $600 million communications segment, it gives the company access to new markets, like consumer electronics applications for virtual reality, augmented reality, machine learning and artificial intelligence.
Mattera hopes to do the same thing with the Finisar acquisition.
“I believe that (II-VI) has the market opportunity to be five to 10 times the size in five to 10 years,” he says. “That’s not a plan. It’s not a commitment. It’s just a view about the growth of the market. I told the board that we probably would do well to have a larger acquisition, rather than just doing 20 more at $50 million or $100 million in revenue. It might be helpful to acquire a company our size or bigger so that we could achieve a scale that would allow us to be speedier, simpler for us to be able to accelerate the synergies that we have in the company, for us to be successful, and for us to focus on succession.”