30 September 2010

IQE (AIM: IQE, “the Group”) the leading global supplier of advanced wafer products and wafer services to the semiconductor industry, has acquired Galaxy Compound Semiconductors, Inc. (“Galaxy”), a specialist manufacturer of antimony substrates used in infrared technology, for up to $14.15m in cash.
IQE also separately announces its intention to place 65 million shares to raise £20.8m gross to fund the acquisition, selectively expand IQE’s manufacturing capacity, repay debt and strengthen the balance sheet to position the Group for accelerating future growth.
Acquisition highlights
• Immediately earnings enhancing
• Consideration between $5.5m and $14.15m based on multiple of up to 5.5x Galaxy’s 2010 EBITDA
• Strategic acquisition complements IQE’s existing IR capabilities at Wafer Technology, Milton Keynes, UK, enables multi-site manufacturing, provides access to large US market, and creates significant technology benefits
• Positions IQE as world’s leading provider of antimony based infrared (IR) substrates, with diverse applications in imaging for commercial and military applications
• Forms part of the Group’s strategy to be the leading global supplier of advanced optoelectronic materials and adds additional IP
• Galaxy’s unaudited 2009 accounts showed revenues of $3.0m, EBITDA of $0.8m
• Management and key personnel to remain

Fund raising
• Intention to place 65 million shares at 32p to raise £20.8m
• Use of proceeds to: o Fund acquisition and invest in Galaxy’s growth o Selective investment to expand the Group’s existing manufacturing capacity o Repay approximately £10m debt o Strengthen balance sheet to enhance growth prospects
Dr Drew Nelson, IQE chief executive, said:
“The strategic acquisition of Galaxy positions IQE as the global leader in the rapidly growing market for antimony based infrared materials that are crucial to advanced imaging systems in a variety of commercial and military applications. Galaxy provides IQE with new manufacturing capacity, new products and significant new clients.
“With funds raised from today’s Placing, IQE can also selectively expand its existing manufacturing capabilities and a strengthened balance sheet with net funds will position the Group for further and more rapid growth”
Conference call
There will be an analyst conference call at 08.00 this morning. Please contact Lucy Moseley at lucy.moseley@collegehill.com or on telephone 020 7457 2020 for details.
Rationale for the acquisition
Infrared materials are a rapidly growing segment of the opto-electronics sector and the directors of IQE believe the acquisition of Galaxy will open up major opportunities in global imaging markets. IQE intends to support the expansion of Galaxy by providing $1 million of capital expenditure in 2011.
Galaxy was established in 1999 and is based in Spokane, WA in the United States of America. Its key products are Indium Antimonide (InSb) and Gallium Antimonide (GaSb) substrates, key materials used in infrared imaging systems. Its products are used in a wide range of applications including thermal imaging cameras, forward-looking IR for navigation through darkness, IR homing missile guidance, detection of heat sources, magneto resistance, biomedical imaging and ultra high speed electronic circuits.
Following the acquisition, IQE will be the world’s leading supplier of antimony based IR materials, gaining significant new clients including major US defence contractors and other commercial customers in the IR imaging industry. Consistent with its multi-site manufacturing strategy, IQE will be able to provide IR materials from independent manufacturing facilities at Spokane, WA, and at IQE’s Wafer Technology operation in Milton Keynes, UK.
The acquisition will be immediately earnings enhancing. In the year ended 31 December 2009, Galaxy’s unaudited management accounting information indicated revenues of $3.0 million, earnings before interest tax depreciation and amortisation (“EBITDA”) of $0.8 million, profit before taxation of $0.7million and net assets of $1.6 million as at 31 December 2009.
IQE will be retaining the Galaxy management team and key technical personnel following the acquisition.
Consideration IQE has agreed to acquire Galaxy for a consideration based on a multiple of up to 5.5 times Galaxy’s EBITDA for the year ended 31 December 2010, subject to a minimum consideration of $5.4 million and capped at a maximum total consideration of $14.15 million. The consideration will be settled in cash.
IQE is required to make quarterly payments to the vendors of Galaxy commencing on 31 December 2010 which in aggregate will total $2.5 million. A payment of the final consideration less a retention of approximately $0.6 million will be due for payment on 31 March 2012. The retained $0.6 million will be payable on 31 December 2012.
If the volume weighted average closing price of IQE shares is greater than or equal to 60 pence over a consecutive four week period, the payment terms of the final consideration will be accelerated, but will not be payable before July 2011.
IQE has today also announced a fundraising to raise £20.8 million ( the “Placing”) via the placing of 65 million new ordinary shares of 1 pence in the Company (the “Placing Shares”) with institutional investors at a price of 32 pence per Placing Share (the “Placing Price”). The Placing is being carried out using the existing share authorities of the Company.
Further details of the Placing are contained in a separate announcement. Funds raised will be used, inter alia, to satisfy consideration due to the vendors of Galaxy.
The Placing is conditional upon, inter alia, satisfaction of the placing agreement between Execution Noble and IQE and admission of the Placing Shares to AIM, a market operated by the London Stock Exchange plc (“Admission”). Admission of the Placing Shares is expected to occur on 5 October 2010.

Enquiries: IQE plc +44 29 2083 9400 Drew Nelson Phil Rasmussen Chris Meadows
Execution Noble (Nomad and Broker) +44 20 7456 9191 James Bromhead / Richard Crawley
College Hill +44 20 7457 2020 Adrian Duffield / Carl Franklin