Acquisition

30 September 2010


IQE plc

Acquisition of Galaxy Compound Semiconductors Inc, and £20.8 million fundraising
for capacity expansion and strengthening of balance sheet

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 [e-mail] or on telephone [phone] 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.

Fundraising

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                              [phone]

 Drew Nelson

 Phil Rasmussen

 Chris Meadows


 Execution Noble (Nomad and Broker)   [phone]

 James Bromhead / Richard Crawley


 College Hill                         [phone]

 Adrian Duffield / Carl Franklin




[HUG#1447801]








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