Date Certain M&A of Raydiance, Inc., its Assets and Intellectual Property
Gerbsman Partners – http://gerbsmanpartners.com has been retained by Raydiance, Inc. (“Raydiance” or the “Company”), to solicit interest for the acquisition of all or substantially all of Raydiance assets, including its Intellectual Property (“IP”), in whole or in part (collectively, the “Raydiance Assets”).
The sale is being conducted with the cooperation of Raydiance. Raydiance and its employees will be available to assist purchasers with due diligence and assist with a prompt transition.
IMPORTANT LEGAL NOTICE:
The information in this memorandum does not constitute the whole or any part of an offer or a contract.
The information contained in this memorandum relating to the Raydiance Assets has been supplied by third parties and obtained from a variety of sources. It has not been independently investigated or verified by Gerbsman Partners or their respective agents.
Potential purchasers should not rely on any information contained in this memorandum or provided by Raydiance or Gerbsman Partners (or their respective directors, officers, staff, agents, and attorneys) in connection herewith, whether transmitted orally or in writing (the “information”), as a statement, opinion, or representation of fact. Interested parties should satisfy themselves through independent investigations as they or their legal and financial advisors see fit.
The Company, Gerbsman Partners, and their respective directors, officers, staff, agents, and attorneys, (i) disclaim any and all implied warranties concerning the truth, accuracy, and completeness of any information provided in connection herewith and (ii) do not accept liability for the information, including that contained in this memorandum, whether that liability arises by reasons of Raydiance’s or Gerbsman Partners’ negligence or otherwise.
Any sale of the Raydiance Assets will be made on an “as-is,” “where-is,” and “with all faults” basis, without any warranties, representations, or guarantees, either express or implied, of any kind, nature, or type whatsoever from, or on behalf of, Gerbsman Partners or Raydiance. Without limiting the generality of the foregoing, the Company, Gerbsman Partners, and their respective directors, officers, staff, agents, and attorneys, hereby expressly disclaim any and all implied warranties concerning the condition of the Raydiance Assets and any portions thereof, including, but not limited to, environmental conditions, compliance with any government regulations or requirements, the implied warranties of habitability, merchantability, or fitness for a particular purpose.
This memorandum contains confidential information and is not to be supplied to any person without Raydiance’s or Gerbsman Partners’ prior consent.
SUMMARY OF HISTORICAL INFORMATION
Raydiance develops, manufactures and markets precision manufacturing solutions enabled by femtosecond laser technology. The company’s one step all-laser solutions optimize factory work flow, beyond material processing and handling, to radically improve production efficiency and quality with unmatched part-to-part consistency, higher yields and lower costs. Raydiance solutions are deployed in factories of Fortune 500 companies worldwide and readily integrate into customer manufacturing lines or R&D environments, delivering rapid prototyping and transfer to production.
Raydiance Femtosecond Laser
Raydiance originated from a DARPA-funded research project at the University of Central Florida. Initial external funding came from entrepreneur Barry Schuler (former AOL CEO), who was recruited by DARPA to commercialize the technology. In 2007, the company moved its headquarters to Petaluma, CA where it is currently occupies a 40,000 ft2 facility. In the course of the last ten years the company has raised $80M in five rounds of financing from prominent investors including DFJ, DFJ Growth and Samsung Ventures. Headcount currently totals 61 full-time employees. The management team and Board of Directors is compromised of:
Executive Management Team Board of Directors
Richard Pierce – President & CEO
Barry Schuler, Chairman, Managing Director, DFJ Growth
John H. N. Fisher, Managing Director, Draper Fisher Jurveston
Jeff Safchik – MD, Greenstreet Partners
William R. Beyer – COO/CFO
Keith Morton– Senior Vice President, Sales
Tim Flood – Vice President, Engineering
Dr. Steve P. Sapers – Vice President, Operations
Dr. Sri Srinivas – SVP, Business Development
Raydiance reported revenue in 2014 of $11m and forecasts 2015 revenue of $21M. The chart below gives a historical perspective of Raydiance bookings and billings (revenue) growth.
The Company’s business model is product sales-based with ASPs ranging from $275,000 to over $1,000,000. The Company’s product portfolio spans three primary categories: standalone lasers (~$275,000), to laser with beam delivery rail and software (~$525,000) through full production systems (>$1,000,000).
The Xompany is recognized as a pioneer in two key aspects of laser-based micro-machining:
1) development of the world’s first highly reliable, fiber-based commercial grade femtosecond laser and;
2) a world-class applications team that combines knowledge of femtosecond laser programming with the physics of material science to produce economical solutions in automotive, medical and consumer applications.
A femtosecond is one quadrillionth of a second. In the world of ultrafast lasers for material processing, light pulsed in the femtosecond regime (meaning pulses that are faster than 1 picosecond) deliver energy without imparting heat, this is athermal ablation.
Femtosecond laser technology enables all-laser precision manufacturing, which eliminates the need for post-processing (such as grinding, etching, sanding or polishing) and greatly reduces operating expenses while significantly improving yields. Manufacturers can simplify and optimize factory workflow to reduce cost and accelerate time-to-market for new innovations. Femtosecond all-laser processing enables utilization of both new product designs and previously difficult to economically process materials, such as metal alloys, brittle materials (Gorilla® glass or sapphire), heat sensitive polymers and other composite materials.
Target Market Opportunity, Focus and Applications
Precision micromachining markets span a wide variety of market segments where precision defines the products. This is true for semiconductors, medical devices, aerospace, automotive and many consumer devices. Also, the world of ophthalmics and precision jewelry and watches depend on very precise processing or machining. In aggregate, the annual worldwide manufacturing market is over $100B with precision micromachining making up approximately 10% of this total or just short of $10B. The opportunity is very large however success depends on focus.
Raydiance elected to focus in three micromachining segments: medical, automotive and consumer. This focus is driven by market size and the economic advantages made possible with femtosecond laser-based processing.
Raydiance has established a defensible position in each of these segments by leveraging its unique applications expertise to develop trade secrets and know-how for complete turnkey solutions for customers in each of the segments outlined below. The common theme in all of these application areas is that laser processing allows for single step machining. In other words, traditional mechanical machining or even other laser processing leaves a rough surface after drilling, milling or cutting. These rough surfaces demand multiple steps and techniques (grinding, polishing, chemical etch) to achieve desired surface quality for precision parts. Femtosecond laser processing achieves desired surface quality in a single step – a major element of the value proposition.
Medical Applications: Implantable medical devices including metal (nitinol) and polymer (plastic) stents [picture], heart valves, catheter guide wires and surgical needles. Intricate patterns never before achieved have advanced the efficiency of heart stents helping to prolong and save lives. Femtosecond-based laser machining take a metal or polymer tube and cut the intricate patterns in a single pass yielding substantial cost savings.
Automotive Applications: Fuel injector spray nozzles depend on very precise holes that determine the efficacy of both fuel economy and emissions of all engine types, be it automotive, marine, or industrial. Femtosecond-based laser machining is advancing the state of the art by allowing for different shape holes and fashioning the entrance and exit of holes. Instead of making smaller and smaller holes the shape of the holes is now allowing manufacturers to meet government regulations more efficiently.
Consumer Applications: Gorilla Glass™ cutting for smartphones and tablets is a $15B standalone business today. The precision of cut glass edges determines the strength of glass and its tendency to break: a very important quality for all mobile devices. Femtosecond-based laser machining provides single cut quality eliminating the need to polish surfaces. Further, new so-called 3D or shaped glass is very well suited to the flexibility of laser-based cutting.
Raydiance has strong customer relationship with blue-chip customers across the focus market segments that the company serves. With over 150 systems shipped or installed worldwide, the company is a worldwide leader amongst ultra short-pulse femtosecond suppliers.
In the medical segment, the Company services eight (8) of the top twenty (20) medical device manufacturers worldwide. Customers will be disclosed upon execution of a nondisclosure agreement.
In the automotive segment, the Company serves six (6) of the top twelve (12) automotive parts suppliers or manufacturers worldwide. The Company has recently achieved an applications breakthrough to uniquely and efficiently micromachine diesel fuel injectors holes and has pending designs wins with diesel-focused customers.
In the consumer segment, the company serves some of the largest customers including Samsung. The applications focus is on glass cutting and display repair.
A key factor in Raydiance’s success is the Company’s end-to-end customer support throughout the sales process, providing consultative services for customer application problems and refining or optimizing the efficiency of the machining process. Installation / post-installation support is also an important customer satisfaction element since the Raydiance laser is designed for remote monitoring and diagnostics through an Ethernet connection. Many customers appreciate the preventive maintenance service that can be performed “over the wire.” Raydiance’s knowledgeable team of scientists, who come from an assortment of research disciplines, can provide knowledgeable insight and have “inventioneered” multiple industry applications.
Summary of Intellectual Property
The intellectual property of the Company consists of 33 issued patents and 20 pending patents reflecting a first-to-market position. The patent strategy is both defensive and offensive. The defensive aspect is focused on what’s inside the laser whereas the offensive aspect involves patenting the processing and application know-how that allows the Company to charge for the value that is generated by its applications engineers. The Company’s offensive strategy is designed to not only protect Raydiance’s market leading position but to support the company’s ability to charge a license fee for application knowledge contained in its software embedded in products. The Company includes a royalty free software license with products sold but reserves the right to charge a future recurring revenue stream based on the development of IP for its applications.
Category Issued Pending Total
Total 33 20 53
Raydiance Patent Summary
In addition to granted patents and patents pending the company has accumulated 230 patentable trade secrets and know-how that are documented in a “Records of Invention” or ROI database. The ROI’s represent the following categories.:
Ultra-short Pulsed Lasers – 178
Consumer Electronics – 24
Medical – 12
General Micro-machining – 11
Automotive – 4
Summary reasons why the assets are attractive:
1. Large Market Opportunity – The need for precision manufacturing is growing especially given the need for smaller, lighter cheaper consumer devices. The consumer segment alone is forecast to be a $2.5B market opportunity for precision glass cutting in the next five years.
2. World class application know-how – Raydiance built a best-in-class applications development team that distinguishes the Company from all other laser manufacturers. Applications knowledge turns standalone lasers into useful, ready-to-use tools.
3. World class fiber-based laser design and manufacturing capability – Raydiance possesses unique knowledge in what is required to design, build and service fiber-based femtosecond lasers.
4. Diversified Base of Customers – Raydiance laser-based systems are used in three primary market segments (medical, automotive and consumer) that represents manufacturing application diversity. This diversity also creates cross-selling opportunities between the market segments and customers.
5. Broad, highly defensible patent portfolio – The Company employs a highly defensible IP strategy, with 33 patents awarded and 20 patents pending in areas related to applications know-how, short pulse technology and power / form factor.
Detailed reasons why Raydiance assets are attractive are:
Raydiance has transformed or pivoted from being a pure laser manufacturer to a company that now delivers the much more than “just the laser.” The Company delivers turnkey packages of ingredients that make femtosecond lasers useful tools. The analogy being that a microprocessor or CPU is a very powerful semiconductor device but unless housed in a smartphone, tablet or personal computer the capabilities remain “untapped.”
The same is true with femtosecond lasers and the programming required to unleash the capabilities for solving unique material problems or precision part fabrication. This programming coupled with the right beam delivery approach is key to the company’s application approach. Depending on the specific application, the package elements vary.
The key elements include the laser, the optics (may include a scanner) to direct the beam, the part holding capability and ultimately the software programming that transforms a standalone laser into an integrated factory floor ready production tool. Raydiance recognized early that to harness the market opportunity one needs to provide turnkey solutions (full packages for customers). Customers are willing to pay for these solutions and prefer turnkey solutions as opposed to needing to contracting/hiring/outsourcing the design and problem-solving aspect of harnessing femtosecond technology.
This unique market approach is what distinguishes Raydiance and leads to these reasons for why the assets are attractive. The timing of the release of subsequent purchase orders under a major customer supply agreement has lead to working capital constraints and the opportunity to acquire all or a portion of Raydiance’s assets to be sold. The acquisition of these assets can enable the purchaser to realize significant short and long term value from the Raydiance assets as Raydiance maintains the ability to quickly scale within the context of sufficient working capital and a stronger balance sheet.
· Large Market Opportunity – The need for precision manufacturing is growing especially given the need for smaller, lighter cheaper consumer devices. The market for laser-based solutions is a subset of the $100 billion industrial manufacturing market and comprised $8.8B in 2014. Worldwide laser sales are projected to increase 6.2% in 2015, reaching a total market size of $9.3B, of which industrial laser material processing is expected to be $2.5B(1). In addition, consumer segment alone is forecast to be a $2.5B market opportunity for precision glass cutting in the next five years.
(1): Strategies Unlimited: “The Worldwide Market for Lasers: Market Review and Forecast 2014”
· World class application know-how – Raydiance has built a best-in-class applications development team that distinguishes the company from all other laser manufacturers. Applications knowledge turns standalone lasers into useful, ready-to-use tools: a fact cherished by Raydiance customers and a primary reason for Raydiance’s market leading position. In addition to building the world’s most commercially reliable fiber-based femtosecond laser, Raydiance has assembled a team of highly skilled optics, material science and machine building expertise that is able to rapidly solve customer problems and provide them a turnkey solution to meet customer requirements.
· World class fiber-based laser design and manufacturing capability – Raydiance possesses unique knowledge in what is required to design, build and service fiber-based femtosecond lasers. The company pioneered the use of real-time computer-controlled pulse stabilization and control, and the amplification techniques to achieve efficient use of fiber for high power, ultra-short pulsed lasers.
· Diversified Base of Customers – Raydiance laser-based systems are used in three primary market segments (medical, automotive and consumer) representing manufacturing application diversity. The diversity also creates cross-selling opportunities between the market segments and customers. Customers are highly dependent on the Raydiance technology today in critical applications where there is no other economical means to produce such high-precision parts is available.
· Broad, highly defensible patent portfolio – The company owns a highly defensible IP strategy, with 33 patents awarded and 20 patents pending in areas related to application development, short pulse technology and power form factor. The company has a long standing history of discoveries and inventions that are pushing the adoption of femtosecond laser technology into a broader set of applications in each of the target market segments.
To learn more about the Company’s technology or products, click on the following links.
1. Precision Machining without Heat – a white paper on the physics of no heat machining.
2. Medical Applications Overview – learn about the economics of femtosecond processing in the medical implantable device market segment.
3. Laser Spec Sheet – an overview of the technical aspects of the key component of Raydiance solutions.
4. R-Drill Spec Sheet – learn how Raydiance packages the needed pieces together to turn a standalone laser into a useful tool.
Safari does not work with the above links
The Bidding Process for Interested Buyers
Interested and qualified parties will be expected to sign a nondisclosure agreement (attached hereto as Exhibit A) to have access to key members of the management and intellectual capital teams and the due diligence “war room” documentation (the “Due Diligence Access”). Each interested party, as a consequence of the Due Diligence Access granted to it, shall be deemed to acknowledge and represent (i) that it is bound by the bidding procedures described herein; (ii) that it has an opportunity to inspect and examine the Raydiance Assets and to review all pertinent documents and information with respect thereto; (iii) that it is not relying upon any written or oral statements, representations, or warranties of Gerbsman Partners or Raydiance, or their respective staff, agents, or attorneys; and (iv) all such documents and reports have been provided solely for the convenience of the interested party, and Raydiance and Gerbsman Partners (and their respective, staff, agents, or attorneys) do not make any representations as to the accuracy or completeness of the same.
Following an initial round of due diligence, interested parties will be invited to participate with a sealed bid, for the acquisition of the Raydiance Assets. Sealed bids must be submitted so that they are actually received by Gerbsman Partners no later than Thursday, July 9, 2015 at 3:00 p.m. Pacific Time (the “Bid Deadline”) at Raydiance office, located at 1450 North McDowell Blvd., Petaluma, CA 94594. Please also email firstname.lastname@example.org with any bid.
Bids should identify those assets being tendered for in a specific and identifiable way.
Any person or other entity making a bid must be prepared to provide independent confirmation that they possess the financial resources to complete the purchase where applicable. All bids must be accompanied by a refundable deposit check in the amount of $250,000 (the refundable deposit will be held in Raydiance’s legal counsel trust account.). The winning bidder will be notified within 3 business days of the Bid Deadline. Unsuccessful bidders will have their deposits returned to them within 3 business days of notification that they are an unsuccessful bidder.
Raydiance reserves the right to, in its sole discretion, accept or reject any bid, or withdraw any or all of the assets from sale. Interested parties should understand that it is expected that the highest and best bid submitted will be chosen as the winning bidder and bidders may not have the opportunity to improve their bids after submission.
Raydiance will require the successful bidder to close within a 7 day period. Any or all of the assets of Raydiance will be sold on an “as is, where is” basis, with no representation or warranties whatsoever.
All sales, transfer, and recording taxes, stamp taxes, or similar taxes, if any, relating to the sale of the Raydiance Assets shall be the sole responsibility of the successful bidder and shall be paid Raydiance at the closing of each transaction. For additional information, please see below and/or contact:
For additional information, please see below and/or contact:
Steven R. Gerbsman
(415) 456- 0628