GO Scale Capital, an investment fund backed by private equity firms GSR Ventures and Oak Investment Partners, has announced it is acquiring a majority stake in Philips NV’s LED lighting components and its automotive lighting business. The Chinese-led consortium is spending $2.8 billion to buy the unit.
As well as the two private equity firms, the consortium also sees companies such as the Asia Pacific Resource Development and Nanchang Industrial Group join in as part of the partnership. GSR Ventures has a strong focus on investing in China, with Oak Investment Partners investing in assets around the world.
Announcing the Deal
The investment fund announced the deal by releasing a statement. GO Scale Capital will acquire an 80.1% stake in the unit, with Philips holding on to the remaining 19.9%. The transaction will see the unit’s patent portfolio of over 600 patent families in the field of LED manufacturing and automotive lighting move from Philips to the new company, Lumileds.
Co-founder and managing director of GSR Ventures and chairman of GO Scale Capital, Sonny Wu, said in the statement, “GO Scale Capital will focus on expanding Lumileds’ opportunities by investing in its global centers of operation and in the fast growing general lighting and automotive industries.”
Frans van Houten, CEO of Royal Philips, celebrated the unit’s performance in the past and said the deal has led the team “convinced that together with GO Scale Capital, Lumileds can grow faster, attract more customers and increase scale as a stand-alone company”. The unit has a good customer base to build on, as it has previously worked with companies such as BMW and Audi.
The Plans for Future
The PE-backed fund is not considering a breakup off the unit, but wants to build and expand on its successes. According to Bloomberg, this was essential part of striking the deal with GO Scale Capital, as some of the private equity interest might have divided the unit into smaller pieces.
The aim is to expand production capacity in China, which is becoming one of its core markets. But it will still keep business also in the Netherlands and the US. The company operates in 30 countries around the world, with over 8,300 employees.
The new CEO of the company, Pierre-Yves Lesaicherre, said in the statement, “With our strong technology leadership, we are ready to address the future needs of our customers. We will work closely with our industry partners and customers to lead innovation and the transformation of our industry.” According to China Money Network, the unit generated $2 billion in sale and a double digit EBITA margin in 2014.
The deal is a strong victory for China’s maturing private equity sector. GO Scale Capitals managed to beat some of the biggest PE firms in the industry for the Philips unit, as KKR and CVC Capital Partners were reportedly also after the company. It will probably take a few more weeks before the deal is finalised and receives a regulatory approval.