North Carolina-based Cree Inc. plans to sell its lighting business, including operations in Racine, to Ideal Industries, a family-owned manufacturer that serves a variety of end markets.
The deal is valued at $310 million before tax impacts and includes an initial cash payment of $225 million and a potential $85 million earn-out payment based on adjusted EBITDA over the 12-month period beginning two years after the deal closes.
The transaction is expected to close in the second quarter of 2019.
In announcing the deal, Sycamore, Illinois-based Ideal Industries highlighted the significant manufacturing capabilities of Cree Lighting in Racine that come with the purchase.
Cree Lighting has more than 800,000 square feet of operations in Racine, including 160,000 square feet for production, 418,000 square feet for warehousing and nearly 225,000 square feet for administrative functions. The company also has nearly 150,000 square feet of warehousing operations in Pleasant Prairie.
The deal includes Cree’s LED lighting fixtures, lamps and intelligent light control solutions business for commercial, industrial and consumer applications. It also allows Ideal to use and operate under the Cree Lighting brand. It will become Ideal’s 20th branded operating unit.
“We’re acquiring a very special organization poised for sustained success, and we look forward to assisting Cree Lighting in realizing its full potential,” said Jim James, chairman and CEO of Ideal Industries.
Cree significantly grew its lighting business from fiscal 2011 to fiscal 2012 with the acquisition of Racine-based Ruud Lighting in a more than $580 million deal. After the acquisition, Cree invested significantly in its Racine operations and the lighting business grew to more than $900 million in revenue and became 55 percent of the company in fiscal 2015, according to securities filings.
But revenues have declined in recent years due to lower sales volumes, decreasing customer demand and quality issues. In fiscal 2018, the lighting segment had $569 million in revenue.
In February 2018, Cree announced it would increase its focus on its Wolfspeed semiconductor business.
“This transaction provides significant resources to help accelerate Wolfspeed’s growth while providing a terrific growth opportunity for the Lighting Business and its employees through an expanded channel that strengthens its market position,” said Gregg Loew, CEO of Cree.
Ideal announced Craig Atwater, senior vice president and general manager of Cree Lighting, would join Ideal. The lighting business would continue to operate out of Durham, North Carolina, Racine and other global locations.
“In so many ways, becoming part of the Ideal family returns Cree Lighting to its earliest foundations and values,” Atwater said. “Our people and partners are going to see that Ideal is a strong cultural and strategic fit for Cree Lighting.”