OVERVIEW OF THE DEAL
On Wednesday the 3rd of February, EssilorLuxottica & Cooper Companies signed an agreement to enter a 50/50 joint venture in order to acquire SightGlass Vision, a company specialized in the development of lenses aimed to limit the progression of myopia among children.
This will enable both Cooper Companies and EssilorLuxotica to make full use of their leadership in myopia treatment to strengthen the commercialization of SightGlass Vision’s lenses. Moreover, it will help them manage the increase of myopia’s cases globally - from 2.5bn cases to expected 5bn by 2050. It is also expected that both of the acquirers’ technologies Essilor’s Stellest Lens and CooperVision’s MiSight might benefit from revenue and cost synergies with SightGlass Vision’s existing solutions.
Company Details: Acquirer 1 - EssilorLuxotica
Founded: October 2018 (date of merger)
Headquarters: France
CEO: Francesco Milleri
Status: Public - Listed
Number of Employees: 150,000
Market Cap: €60bn
Revenue: €14.420m (2020E)
EBITDA: €2.445m (2020E)
EssilorLuxottica is a French-based firm specialized in the design, manufacturing and marketing of ophthalmic lenses. It operates in three segments: lenses & optical instruments, optical equipment designed for opticians and optometrists, and sunglasses & readers. Essilor derives the majority of its sales from North America (55.4%), showing a strong international development and the rest of it is homogeneously split between Europe (24.5%) and APAC (17.5%). Revenues are equally generated by EssilorLuxottica’s manufacturing brand Essilor, which represent 47.5% of total sales, and its retail & wholesome brand Luxottica (52.5%). Finally, even though the 2020 financial report is not yet available, sales are expected to decrease by 16.7% in 2020 due to the closing of brickand-mortar shops.
Company Details: Acquirer 2 – Cooper Companies
Founded: 1958
Headquarters: U.S.
CEO: Albert G. White III
Status: Public - Listed
Number of Employees: 12,000
Market Cap: $18.9B
Revenue: $2,430m
EBITDA: $689m
Cooper Companies is an American public medical device company. It operates in two business units, CooperVision and CooperSurgical. CooperVision provides services for contact lens wearers and eye care practitioners. More specifically, the vast majority of sales are made from daily, two-week and monthly contact lenses. It sells its products in the Americas (41% of sales), EMEA and APAC (23%). For similar reason as Essilor, CooperVision’s revenue went down by 8% in 2020.
Company Details: Target – SightGlass Vision
Founded: 2016
Headquarters: U.S.
CEO: Thomas W. Chalberg
Status: Private
Number of Employees: 10
Revenue: $263,000
Finally, SightGlass Vision is a small private American company that is part of the Photographic & Optical Equipment/Supplies Manufacturing Industry. it focuses on ending nearsightedness by developing and manufacturing highly innovative and science-based treatments for children.
SYNERGIES
1. Targeted synergies
Regarding synergies, Sight Glass Vision will provide both EssilorLuxottica and CooperCompanies with technology in order to complement the company’s existing solutions, such as Essilor’s Stellest lens and CooperVision’s MiSight and Orthokeratology contact lenses. As for EssilorLuxottica and CooperCompanies, there is an intention to combine their scientific expertise and product development capabilities in order to increase awareness about global eye health and offer innovative solutions for tackling such issue. For that, the companies intend to accelerate the commercialization of innovative spectacle lenses from SightGlass Vision, which are designed to reduce the progression of myopia in children.
2. Synergies analysis
We believe that the synergies derived from such a joint venture will have a positive effect, since SightGlass Vision’s technology will complement both companies’ existing solutions. In such sense, it is noticeable the presence of cost synergies, due to the presence of complementary resources. Additionally, it is perceived that there is a desire to increase market access and power, since the short-term objective is to accelerate the commercialization of innovative spectacle lenses, as commented by Cooper's CEO in J.P. Morgan's Healthcare Conference. Therefore, revenue synergies are also present in the transaction.
In the long-term, the joint venture intends to tackle the growing worldwide myopia issue. Such is due to the changes in lifestyle, since technology is being each year more present in our lives, leading society to increase the use of electronic equipment, which are held close to the eyes. Due to the need to revert such conditions, the joint venture will use technology in order to produce innovative lenses, aiming to reduce the progression of myopia in children.
RISKS AND UNCERTAINTIES
After COVID-19, life is moving toward online systems more than meeting in person; many firms and educational institutions are moving to new systems like working and studying online. As a result, tech big firms like Apple, Samsung, HP, and many others are trying to develop new versions of screens that do not cause myopia or at least decrease the possibility of getting myopia. Therefore, the estimation of 5 billion people being myopic by 2050 remains highly hypothetical.
The eyewear market -by nature- is highly fragmented; and other new joint ventures or even mergers have a high probability to take place in the future. As a consequence, the competition in the market might be really high and as a result, Essilor Luxottica and Cooper Companies’ joint venture might not reach its financial aims.
JOINT VENTURES IN THE EYEWEAR INDUSTRY
1. Important joint ventures in the eyewear industry
The use of a joint venture is not new in the eyewear industry. There have been various joint ventures between luxury brands and glasses producers. For example, LVMH concluded in 2017 a joint venture with Safilo - third company in the eyewear industry - to produce the glasses of its brands like Celine or Loewe. This joint venture ended in 2019, when LVMH decided to change its producer to Marcoline, with which it has concluded a new joint venture. In the meantime, Safely concluded a joint venture with Parma, a South Korean eyewear manufacturer, so that both companies would conquer new markets.
Joint ventures are not new to EssilorLuxottica either. The group has concluded many of them in his history, which have contributed to its innovation power. The joint venture between Essilor and PPG in 1990 to create the TransitionOptical company enabled Essilor to develop one of its flagship products, the progressive lenses, whose tint adapts to the brightness of the room. In 2013, Essilor bought the part of the capital of TransitionOptical still owned by PPG, bringing an end to this successful joint venture. In 2000, Essilor concluded another strategic joint venture with Nikon to conquer the Japanese market and to develop new products, such as anti-blue light lenses.
2. The opportunities brought by joint ventures in this sector
Joint Ventures in eye care space offers several opportunities for the firms. Historically firms with global positions have come into Joint ventures with local players to increase their presence & leverage the local firm’s distribution networks in the local market. (ex- Marcolin SpA and Ginko Group). Joint Ventures have also helped firms leverage each other’s strengths in the past. NIKON and Essilor entered into a JV in 2000 and this helped Essilor take the benefit of the positive brand image of NIKON & NIKON could benefit from the technology and network of Essilor. With Eye Care being somewhat of a niche industry, Join Venture helps by sharing both firms’ expertise & that helps in accelerating the product development.
Joint ventures have been very common in the eye care space to gain access to intellectual properties & sell the product together. It also helps in increasing the production capacity. (ex- safilo Group – Dior, Givenchi, Fendi). There are other several advantages of JVs which are common to all industries, such as economies of scale, shared investments which ultimately leads to sharing the risks & costs, avoiding competition & pricing pressure and finally building relationships & networks. With the rapid rise of health issues globally, we see a lot more JVs coming up in the future with a focus on innovation in technology, designs, materials, coatings & processes.
CONCLUSION
This new joint venture demonstrates the innovative power of the eyewear industry. With it, EssilorLuxotica and Cooper Companies reassert their wishes to tackle worldwide health issues by bringing innovative products to the public, now and in the future