SMART Global Holdings to acquire Cree’s LED business

SMART is a global leader in specialty solutions serving the electronics industry for over 30 years across the memory, computing, and storage markets. Cree LED comprises a broad portfolio of highly efficient LED chips and high-performance LED components and represents one of the strongest global brands in the LED business. Leveraging SMART’s comprehensive global platform and proven operational excellence, Cree LED will be well positioned to continue to deliver industry-leading LED products and solutions.

“As a leader in LED technology with a highly respected brand and expansive patent portfolio, Cree LED has a track record of delivering best-in-class solutions through well-established distribution and sales channels,” said Mark Adams, President & CEO of SMART Global Holdings. “The addition of Cree LED significantly advances our growth and diversification strategy.

“We see a meaningful opportunity to expand our business into specialty lighting and continue to drive value for our customers, employees, and shareholders. We are excited about this transformational transaction and look forward to welcoming the Cree LED team to the SMART family.”

“We are pleased to announce the sale of our LED Products business to SMART, which represents another key milestone in our transformational journey to create a pure-play global semiconductor powerhouse,” said Cree CEO Gregg Lowe. “This transaction uniquely positions Cree with a sharpened strategic focus to lead the industry transition from silicon to silicon carbide. SMART has a strong platform and a solid track record of successfully acquiring and integrating businesses with a focus on specialty solutions.”

Compelling strategic and financial benefits

• Leading positions in compelling markets: Cree LED provides best-in-class, high-power technology to niche markets, within the large global LED lighting industry, including general lighting, specialty lighting, large-format video screens and outdoor and architectural lighting.
• Strong track record of innovation: With a highly focused R&D-centric strategy, Cree LED is a technology leader with more than 2000 patents, offering a broad portfolio of specific, application-optimised solutions with notable expertise in high-power applications and color technology.
• Global customer and distribution network: With locations in the United States, China and Hong Kong, Cree LED serves over 1,000 customers through direct sales as well as a strong global distribution network.
• Broad strengths and added capabilities: Cree LED adds more than 2,000 colleagues to our workforce, including ~200 engineers, a strong leadership and general management team, as well as strength in R&D, sales and marketing, and extensive global channel management.
• Enhances financial profile and is expected to be immediately accretive: The transaction is expected to be immediately accretive to Gross Margin, Adjusted EBITDA, Non-GAAP EPS and Free Cash Flow, while providing greater consistency to overall earnings profile.

Adams continued: “We see meaningful upside opportunity at Cree LED as we leverage SMART’s proven operating system and believe that with renewed focus, strong operating discipline, transformative manufacturing expertise, and synergistic cost benefits, we will deliver significant shareholder value.”

Transaction terms and financing

Under the terms of the agreement, which has been approved by the boards of directors of both companies, SMART will make an initial cash payment of $50 million upon closing and an additional $125 million in a seller-financed note payable interest only until a balloon payment due in August 2023. Cree has the potential to receive an earn-out payment of up to $125 million based on the revenue and gross profit performance of Cree LED in the first full four quarters post-transaction close, payable in the form of a three-year seller note.

The transaction is subject to required regulatory approvals and satisfaction of customary closing conditions. The seller-financed notes will accrue interest at an annual rate of LIBOR plus 3% payable quarterly.

Following the close of the transaction, which is expected to occur in the first calendar quarter of 2021, SMART expects to license and incorporate the Cree LED brand and trademarks into the SMART portfolio of businesses. 

Barclays is acting as financial advisor and O’Melveny & Myers is acting as legal advisor to SMART.