Partnerships change industry

10/01/1999

BRAINTREE, MA - THE NUMEROUS partnerships recently announced among semiconductor and other vendors could in some cases be the first step toward a merger or acquisition.

Michael Trudeau, co-founder of Trudeau & Trudeau Inc. (Braintree, MA), a consultant versed in presiding over the exchange of corporate vows, points to a partnership among cleanroom service contractors that was formed last May when Daw Technologies Inc., Dynamic

Systems Inc. and ISinc. Inc. joined Point One, a program by Praxair Inc. (Danbury, CT) that provides wafer fab facilities integration, systems design, engineering, construction, installation, start-up and ongoing site services.

"We see it as a toe in the water for four companies moving toward a merger or acquisition," Trudeau says. "The industry is constantly looking to reduce cost, and the way they can do that is to use one contact point to take care of the services. Praxair is offering everything, soup to nuts."

Lisalynne Quinn, a spokesperson for Praxair's semiconductor division, calls the alliance innovative, and says chipmakers will no longer have to coordinate between multiple service providers, who build, supply and manage their wafer manufacturing facility. Other recently announced alliances include the Fanuc/Terra Universal/Shuttleworth partnership for an automated stockers and delivery system. [See "Technology advances spawn multivendor alliances," CleanRooms, September 1999, page 1.]

Quinn declined to comment on whether any merger or acquisition would result from the Praxair alliance. "We will continue to form these kinds of alliances with the belief that the semiconductor industry is looking for one point of contact for all its needs," Quinn says. "It's easier for manufacturers to come to Praxair and say, 'build us a fab.' This is where we think the industry is going. Ten years ago, a gas company sold gas and that was it. Now, it's about providing ongoing, comprehensive site services."

In addition to partnerships, merger and acquisition activity is common in almost every industry, whether it's global or domestic. According to Securities Data Co. (Newark, NJ), a provider of merger and financial information, total announced domestic merger and acquisition transactions in the second quarter of 1999 skyrocketed to more than $540 billion. That's up from $340 billion in the first three months of the year. The second quarter results, however, are less than the second quarter of 1998 volume of about $679 billion. Last year, more than $1.62 trillion in merger-acquisition transactions occurred in the United States.

The contamination control industry is experiencing some of the same growing pains as the automobile and healthcare industries. Securities Data indicates that about $52 billion of the to-date activity involved 278 merger and acquisition deals in the biotechnology industry, while the semiconductor industry saw nearly $31 billion in transactions.

Other deals making headlines include a $7.2 billion offer from Air Products and Chemical Air Liquide SA for the UK-based BOC Group. In fact, it was ranked fifth on a top 10 list of worldwide mergers and acquisitions during the month of July.

This restructuring is an apparent vying for market position between Air Liquide SA (France), Praxair, Air Products and Chemicals and Linde AG engineering group. News of their respective deals broke within a short time frame. In August, The Wall Street Journal reported that Linde agreed to pay $3.7 billion to acquire AGA AB of Sweden, Europe's second largest industrial-gas group behind Air Liquide, Praxair and Air Products and Chemicals. That deal comes on the heels of the July bid for BOC as well as the acquisition of five gas distributors BOC made in June.

Marriages, partnerships or buy-outs occurring within the semiconductor, biotechnology and pharmaceutical industries represent one driver that is changing the contamination control industry. "The industry is going through some consolidation pressures, from facilities design right up through site services, engineering, construction and start-up," Trudeau says.

Ultimately fueling this activity is the quest for a bigger customer base, greater market share and return on investment. "Before, companies would expect to see a return in five to seven years, now they want it in two to three," says Arnie Benson, managing director at Trudeau & Trudeau.

Mark A. DeSorbo