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Brooks Automation to Sell Semiconductor Cryogenics Business

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Brooks Automation (BRKS - Free Report) recently signed a deal with Edwards Vacuum LLC to sell its semiconductor cryogenics business in an all-cash deal worth $675 million.

Investors’ reaction toward the news was positive as shares of Brooks have surged 33.6% since the announcement on Aug 27 compared with the industry’s rise of 1.7%

Per the deal, Edwards Vacuum LLC, part of Atlas Copco Group, will gain control of the “CTI pump business, the Polycold chiller business, the related services business” and Brooks’ 50% share in joint venture, Ulvac Cryogenics, Inc.

Brooks, which originally acquired the semiconductor cryogenics business from Helix Technology, will now be part of Edwards Vacuum LLC. The integration is expected to be complete by the first quarter of calendar 2019.

Notably, the company will not transfer any products or IP from its Life Sciences segment or vacuum automation portfolio to its Semiconductor Solutions segment.

Let’s Take a Closer Look at the Deal

Semiconductor cryogenics business has been a stable and profitable business for Brooks.

In the last 12 months, the business generated approximately $195 million in revenues, per management. Notably, the business contributed approximately 28% to fiscal 2017 revenues.

We believe Brooks has managed to get an attractive price for the deal. The company will get 3.5 times the revenues generated by the semiconductor cryogenics business in the last 12 months.

Why is Brooks Selling a Profitable Business?

Brooks’ decision to sell its business comes at a time when the company looks to focus on its core business segments that drive higher margins.

On the last earnings call, management expressed its intention to focus on its high growth and high margin businesses, which include the Life Sciences segment and its semiconductor portfolio.

Brooks ventured into the Life Sciences segment in 2011 and since then the company has been ramping up investments to develop this segment.

This move helped the company diversify its business from its core semiconductor segment and also contributed to top-line growth. Notably, in the last reported quarter, Life Sciences jumped 35% year over year to $50 million.

Moreover, the cryogenics business is witnessing CAGR of 3% as against the market average of 16%, per management. Therefore the company’s decision to sell the business is a positive as it can focus on its profitable segments.

Brooks’ decision to use the cash proceeds to engage in M&A activities especially to bolster its Life Sciences segment will drive revenues.

We believe that the company’s strong core portfolio coupled with growing Life Sciences segment will help it maintain its competitive position while driving shareholder value.

Zacks Rank & Stocks to Consider

Brooks currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader computer technology sector are Vishay Intertechnology (VSH - Free Report) , Nikon Corp. (NINOY - Free Report) and Entegris, Inc. (ENTG - Free Report) . While both Vishay and Nikon sport a Zacks Rank #1 (Strong Buy), Entegris carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Long-term earnings growth rate for Vishay, Nikon and Entegris is projected to be 9.2%, 11.6% and 12.5%, respectively.

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