Deal focus: Go Scale out to dominate global LED
Go Scale Capital, a China-based investment fund sponsored by GSR Ventures and Oak Investment Partners, wants to build the world's largest LED company. It has now announced two notable deals in the space, most recently the sale of a majority stake in its portfolio company, Lattice Power, to Shunfeng International Clean Energy (SFCE).
Go Scale and its fellow investors in Lattice, which include GSR, Asia Pacific Resources Development (APRD), Crescent Point, Temasek Holdings and Mayfield, will receive HK$2.04 billion ($263 million) worth of shares in Hong Kong-listed SFCE.
Sonny Wu, who is managing director of GSR, chairman of Go Scale and executive chairman of Lattice, says the alliance will propel the two companies to greater heights. SFCE, previously known as Shunfeng Photovoltaic, wants to transform itself from a solar power operator into a global low-carbon solutions provider. By taking a 59% stake in Lattice it can get exposure to the emerging lighting technology market.
Lattice is the first company in the world to start mass production of LED chips using gallium nitride (GaN) on silicon technology, which is said to be 30% more cost efficient than the traditional sapphire substrate components. The latter components feature in products made by Lumileds, Philips' LED and automotive lighting unit. Go Scale's other deal of note involved leading a consortium that bought an 80.1% stake in Lumileds at an enterprise value of $3.3 billion.
"Technology is the critical element because most LED players in China don't have it. We have now accessed two companies that have strong patents and intellectual property. They offer the best technology solutions in terms of cost structure, quality and technology reliability. However, even together they don't have enough capacity to serve emerging customers," Wu says.
The global LED market is worth $100 billion, with most of the demand coming from China. Go Scale wants to serve as a consolidation platform for the industry, aligning with the best players in the region to help portfolio companies build businesses that are sustainable in the long term.
"GSR and other investors have divested 51% of Lattice Power. Everyone has made good money but we still have a position in the company. When Lattice goes IPO or merges with another industry player, such as Lumileds, then we will make even more money because we'll be the biggest LED company in the world," Wu says.
Lattice's most recent funding took place last year and saw APRD contribute $40.8 million towards an $80 million round that also featured GSR, Mayfield and Crescent. Controlled by Kin Ming Cheng, a Chinese billionaire with an interest in renewable energy, APRD owned 28.49% of Lattice prior to SFCE's investment and now has 16.38%. APRD is also a shareholder in SFCE.
"Kin Ming Cheng is the new energy sector's Warren Buffett. And I am the most dedicated investor in new energy," Wu says with a smile.
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