There are two kinds of investors - those who've watched a great idea slip away and liars. In other words, it's just part of the nature of investing that eventually you're going to identify a great stock and somehow, for some reason, not buy it before its big move. With today's news that Tokyo Electron is buying up-and-coming semiconductor equipment company FSI International (Nasdaq:FSII), I add another stock to that not-so-illustrious list.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

The Deal
The companies announced that Tokyo Electron, a huge Japanese manufacturer of semiconductor equipment and prime rival of Applied Materials (Nasdaq:AMAT), will acquire FSI International in a $253 million cash tender that values FSI International at $6.20 per share.

At that price, FSII shareholders are reaping a 54% premium to August 10th's close and the highest price that the stock has seen in six years. All of that said, it's not exactly an expensive deal for Tokyo Electron. With estimated revenue of $145 million for fiscal 2012, Tokyo Electron is paying about 1.7 times sales - not an especially high price by the standards of the industry.

SEE: A Primer On Investing In The Tech Industry

Why Is Tokyo Electron Doing This Deal?
FSI International specializes in surface conditioning equipment for chip makers - equipment that cleans wafers before the other steps of the chip-making process begin. Most investors probably know that the semiconductor manufacturing is extremely precise and sensitive; contaminants simply cannot be tolerated. Consequently, surface conditioning equipment is mission-critical.

FSI International is a small company, but its Orion system (first released in 2010) represents a meaningful step forward. Unfortunately, the company has proven too small to really translate that engineering edge into meaningful market share. With this type of equipment being a classic case of "failure is not an option," customers like Intel (Nasdaq:INTC) and Taiwan Semiconductor (NYSE:TSM) have been hesitant to move away from market-leading Dainippon Screen and give the scrappy newcomer a chance.

This is where the deal can really become a winner for Tokyo Electron. Tokyo Electron is the #2 player in batch process and #3 in single wafer (Dainippon has more than 50% share in each market category), can now leverage FSI's better mousetrap through a large and established sales channel. What's more, customers know that Tokyo Electron is going to be around next year, in five years and in 10 years - a potentially significant competitive differentiating factor.

For investors curious about the space in general, this deal is unlikely to shake up Lam Research's (Nasdaq:LRCX) positioning in single wafer processing. Likewise, it's not really a major development for Applied Materials - while I had thought AMAT might be interested in buying FSII as well, surface conditioning is a small business for AMAT (it has less than 5% share) and it is unlikely that Applied Materials could have quickly leveraged this deal.

SEE: 5 Must-Have Metrics For Value Investors

The Bottom Line
I won't pretend that I'm not gutted to see this deal announced on Aug. 13, 2012 , particularly as I was literally intending to buy the stock this week. I suppose that's proof positive that you can easily wait yourself out of good ideas just as easily as buying in too soon. In any case, it does prove that legitimately good technology seldom stays unappreciated in the market indefinitely.

This is a reasonable deal for FSI International shareholders. I thought the stock was worth north of $8, but there was quite a bit of risk and uncertainty as to the timing and trajectory of the company's growth. When weighing the challenges of taking on Dainippon and Tokyo Electron and the certainty of over $6 per share in cash on the barrel, it seems like a win-win deal for both FSI International and Tokyo Electron.

At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Stock Analysis

    How Toyota Succeeds at Home and Abroad (TM)

    Japan's biggest car manufacturer is also one of North America's biggest, delighting shareholders with its high profit margins.
  2. Stock Analysis

    Analyzing Microsoft's Return on Equity (ROE) (MSFT)

    Discover a detailed analysis of Microsoft's historical return on equity, and learn how its ROE stacks up to its competitors in the tech industry.
  3. Stock Analysis

    Starbucks: Profiting One Cup at a Time (SBUX)

    Starbucks is everywhere. But is it a worthwhile business? Ask the shareholders who've made it one of the world's most successful companies.
  4. Stock Analysis

    How Medtronic Makes Money (MDT)

    Here's the story of an American medical device firm that covers almost every segment in medicine and recently moved to Ireland to pay less in taxes.
  5. Investing News

    Latest Labor Numbers: Good News for the Market?

    Some economic numbers are indicating that the labor market is outperforming the stock market. Should investors be bullish?
  6. Investing News

    Stocks with Big Dividend Yields: 'It's a Trap!'

    Should you seek high yielding-dividend stocks in the current investment environment?
  7. Investing News

    Should You Be Betting with Buffett Right Now?

    Following Warren Buffett's stock picks has historically been a good strategy. Is considering his biggest holdings in 2016 a good idea?
  8. Products and Investments

    Cash vs. Stocks: How to Decide Which is Best

    Is it better to keep your money in cash or is a down market a good time to buy stocks at a lower cost?
  9. Investing News

    Who Does Cheap Oil Benefit? See This Stock (DG)

    Cheap oil won't benefit most companies, but this retailer might buck that trend.
  10. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
RELATED FAQS
  1. When does a growth stock turn into a value opportunity?

    A growth stock turns into a value opportunity when it trades at a reasonable multiple of the company's earnings per share ... Read Full Answer >>
  2. What is the formula for calculating EBITDA?

    When analyzing financial fitness, corporate accountants and investors alike closely examine a company's financial statements ... Read Full Answer >>
  3. How do I calculate the P/E ratio of a company?

    The price-earnings ratio (P/E ratio) is a valuation measure that compares the level of stock prices to the level of corporate ... Read Full Answer >>
  4. How do you calculate return on equity (ROE)?

    Return on equity (ROE) is a ratio that provides investors insight into how efficiently a company (or more specifically, its ... Read Full Answer >>
  5. How do you calculate working capital?

    Working capital represents the difference between a firm’s current assets and current liabilities. The challenge can be determining ... Read Full Answer >>
  6. What is the formula for calculating the current ratio?

    The current ratio is a financial ratio that investors and analysts use to examine the liquidity of a company and its ability ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center