Knowles announced two strategic actions that are intended to "reflect execution of strategic roadmap to increase exposure to high-growth medtech, defense & aerospace, and industrial electrification end markets," aiming to "accelerate its transformation to an industrial technology company focused on higher growth and higher value opportunities."
In accordance to that intention Knowles confirmed that in entered into a definitive agreement to acquire Cornell Dubilier in an all-cash transaction. In parallel, Knowles announced that it is evaluating strategic alternatives for its Consumer MEMS Microphones business.
Cornell Dubilier, a privately held company headquartered in Liberty, South Carolina, is a technology leader and manufacturer of high-quality film, electrolytic and mica capacitors used in demanding medtech, military, aerospace, and industrial electrification applications with an annualized revenue of more than $135 million and over 35 thousand customers. Knowles says this acquisition will significantly expand Knowles’ serviceable available market through Cornell Dubilier’s capacitor offerings.
In addition, Cornell Dubilier’s end markets are aligned to key growth tailwinds, including increasing defense budgets, medical imaging and critical care application growth as well as industrial electrification and implementation of next generation fast charging architectures.
"The combination of Cornell Dubilier’s broad selection of power film, electrolytic and mica capacitors with Knowles’ Precision Devices segment will deliver a compelling value proposition and wider portfolio of products and solutions to both existing and new customers," the company details in the announcement.
"Adding Cornell Dubilier’s impressive, broad-based roster of OEM and distribution partner customers, as well as its leading capabilities in capacitor technology will expand the applications for Knowles’ products," says Knowles president and chief executive officer Jeffrey Niew. "We will be well positioned to grow with new and existing customers as we work to generate stronger earnings and cash flow and create shareholder value. We admire the outstanding company and culture built by the Kaplan family over the past 40 years and we look forward to welcoming Cornell Dubilier’s talented employees to Knowles."
Consumer MEMS Microphones Business
In light of this industrial expansion, Knowles also announced that it is reviewing strategic alternatives for its consumer micro-electro-mechanical systems (MEMS) microphones business (CMM) - which can be interpreted as looking to sell that business. Knowles designs and manufactures MEMS microphones that are used for voice control, communications and audio recording in smartphones and in all sorts of consumer and professionals devices.
"The CMM segment is an attractive, cash-producing business with differentiated products and a strong customer base. This process is another step in Knowles’ business transformation as we explore potential partners to accelerate a return to growth for CMM," adds Jeffrey Niew.
In December 2019, Knowles acquired the MEMS microphone ASIC design business from Austrian company ams AG, with all its related intellectual property, rights to source ASIC wafers from multiple foundry partners. At the time, Jeffrey Niew, valued the significant cost synergies of the acquisition and the potential to broaden its portfolio of MEMS microphones.
Over the last five years, the massive industrial scales and price constraints required by the mobile industry have caused enormous pressures over the original MEMS microphone businesses, causing them to exit the segment or negotiate manufacturing rights. Current leading companies in the space, apart from Knowles, also include Infineon, Sonion, Goertek, and AAC Technologies, but almost all these companies are basically forced to work with the industrial giants that own the ASIC and MEMS element foundries and large OEM manufacturing operations, such as Goermicro (Goertek).
According to the latest MEMS microphone market report from Yole Intelligence, Knowles is the main player in MEMS microphones for smartphones, although applications in wearables and particularly true wireless earbuds are responsible for the recent expansion in the segment. With the numbers of microphones per connected device increasing with active noise cancellation, transparency modes, voice, and hearing augmentation, the volumes are bound to continue to grow.
Knowles has engaged Jefferies LLC to assist in the CMM strategic review. "No assurance can be given that any transaction or other strategic outcomes will result from the review. The Company has not set a timetable for the conclusion of the strategic review and does not intend to comment on or provide updates regarding these matters unless and until it determines that further disclosure is appropriate or required," Knowles adds.
Knowles posted an investor presentation with details regarding the Cornell Dubilier transaction, which is available at http://investor.knowles.com.
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