Private Equity Flows into Photonics as Industry Grows

By some estimates the photonics-enabled share of global GDP has now reached more than 13% and will continue to grow.

01 October 2018
By Linda Smith and Stephen G. Anderson

Light-enabled (photonics) products and services represent a significant fraction of today's global gross domestic product (GDP), which is the value of all finished goods and services produced worldwide. In 2012, global GDP amounted to about $74.5 trillion US dollars and the value of all photonics-enabled goods and services was about $7 trillion, which means that photonics and its applications underpinned more than 10% of the world's economy.

Since 2012 photonics innovation has continued to fuel the world's economic growth engine at a healthy pace. By some estimates the photonics-enabled share of global GDP has now reached more than 13% and will continue to grow.

An inhomogeneous industry, the photonics business comprises a diverse set of technologies. Historically, much of the value associated with photonics commerce has been created by firms that serve end-use markets like consumer, healthcare, or defense. Such firms, like Apple, Illumina, and Thales, typically do not consider themselves to be part of the photonics industry. Nonetheless, photonics components are key to these companies' success in the marketplace.

More recently, the photonics technology and component providers have captured a larger share of this value, and the private capital markets are responding. The value and number of investments in photonics and photonics-enabled firms has skyrocketed since 2012.

Private Placements

Private placements include private equity or growth capital, venture capital, and private investments in public entities. In the first half of 2018, $17 billion of the $456 billion in private placements worldwide were put to work commercializing photonics technology and scaling businesses with core photonics technology. This includes investments in the photonics segment as well as six vertical market segments enabled by photonics: biophotonics; information technology; advanced manufacturing; defense, security, and sensing; lighting; and energy. index.php?page=private-placements-2018

Transaction value

In terms of transaction value, the information technology sectors saw by far the most investment. Segments include displays, fiber-optic communications, 3D sensing and facial recognition, computing and imaging, and the Internet of Things. Investments spanned startups to growth capital.

Geographically, North America saw the most investment, attracting more than 50% of the total. However, Asia, namely China and South Korea, are realizing an increasing share of the global private placement market.

Transaction volume

In terms of transaction volume, the biophotonics segment saw the most activity through mid-2018, with 30% of private placements. There is a relatively higher volume of investments in the diagnostics subsegment, which predominantly includes companies using fluorescence imaging, optical label-free imaging, and molecular imaging methods to gene-, protein- and cell-based diagnostic assays and point-of-care devices. These promise to make cost-effective genetic testing and personalized medicine a reality in the not-so-distant future. There are also a significant number of investments in companies offering wearable sensor devices that track everything from general fitness to environmental toxins.

Information technology follows with 23% of transaction volume. In addition to large display transactions and a large number of investments in augmented and virtual reality hardware and content, in the imaging and interface segment, investments occurred across a wide range of consumer electronics applications including low-cost application-specific cameras and 3D scanners, 3D image-processing technology, and gesture control interfaces.

High concentration in Asia for photonics

In the first half of 2018, the USA and Canada accounted for slightly more than half the $17 billion worth of private placement transactions across all sectors. However, there is a six-year trend of higher total transaction value in Asia/Pacific with lower value in Europe. The investment value in Asian targets is of substantially higher concentration in the photonics segment than in all other segments combined. It appears that investment in European and North American photonics companies has been focused on commercialization of technology, whereas investments in Asian photonics companies were focused more on growing the companies.

Core components are growing, too

Underlying the end-use markets discussed above is the global photonics components manufacturing industry. Valued in 2016 at $227 billion annually by the SPIE global assessment of core components manufacturing, this element of the photonics industry is also seeing growth. The SPIE Optics & Photonics Industry Report (see below) has tracked core components manufacturing since 2012 and projects a compound growth rate of 6.6% from 2016 through 2018. As with investment capital, there is also a trend of revenues shifting towards Asia as China-based enterprises take an increasing share of the components business.

More information about the photonics industry is available from SPIE: 

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