On Thursday evening, Universal Display Corporation (NASDAQ:OLED) announced it will spend $36 million in cash to acquire contract research organization (CRO) Adesis. While that might seem like an insignificant sum to shell out by a company with nearly $400 million in cash and investments, no debt at the end of last quarter, and a market capitalization of more than $3 billion as of this writing, there are several reasons this small acquisition could be exciting for Universal Display investors.
First, advancing Universal Display's OLED technology leadership remains the primary aim. "This acquisition is part of our strategic growth plan," explained Universal Display CEO Steven Abramson. "We believe that it will provide additional highly skilled resources to further advance our initiatives for the development and delivery of next-generation proprietary emissive material systems in the rapidly evolving OLED industry."
For perspective, UDC states Adesis -- which employs more than "40 chemists with extensive industry and professional experience" -- specializes in "organic and organometallic synthetic research, development, and commercialization." Further, it says Adesis has worked as a partner to Universal Display "over the last few years to help advance and accelerate a number of Universal Display's product offerings."
At Universal Display's core is its enviable group of more than 3,600 issued and pending patents related to OLED architecture, encapsulation, and materials. But those patents will inevitably expire, so the company works tirelessly to continue improving upon its earliest inventions to ensure its treasure trove of patent-protected IP will remain indispensable to the OLED industry.
Assuming Universal Display expected to continue working with Adesis to sustain that progress for the foreseeable future, it may have made perfect sense to absorb all that helpful brainpower, and enable it to operate under Universal Display's well-funded wings. But that doesn't mean Adesis will work exclusively on OLED. To the contrary, the purchase also launches Universal Display into a number of other promising markets.
According to a local profile article of the company around this time last year, Adesis was generating annual revenue in the "double-digit tens of millions" as it worked to expand its team to capitalize on potential new contracts from customers in the pharmaceutical industry. Sure enough, in yesterday's press release, Abramson hinted that Universal Display expects to "leverage [its] twenty-plus years of experience in developing and commercializing cutting-edge chemistry technologies to help expand Adesis' businesses across its end-markets including pharma, biotech and catalysis."
Adesis president Andrew Cottone added that, in addition to enhancing Universal
Display's OLED efforts, "[W]e anticipate that Adesis will benefit from UDC's financial and business acumen to better support our clients with world-class technology and expertise, and reinforce our positioning for continued growth as a specialty chemical CRO."
As it stands, the transaction should close sometime in the third quarter of 2016, after which time Adesis will operate as a wholly owned subsidiary of Universal Display. Cottone will remain president of Adesis, and Abramson will become chairman of the smaller company's board.
In the meantime, I'll be listening closely for more details on the strategy behind this acquisition -- which should hopefully include Adesis' financials and growth potential -- when Universal Display releases second-quarter 2016 results in early August.