M&A drives Intel’s future 

Contact:  Scott Denne 

Intel missed the last big shift in computing. Now it’s spending aggressively to make sure that it doesn’t miss the next one. The storied chip company is using $15.3bn of its $20bn in cash to acquire Mobileye, a maker of semiconductors for assisted and autonomous driving applications. The price puts an unheard of valuation on its latest target – a valuation that suggests that Intel is still smarting from missing out on the mobile phone market. Mobileye is the latest in a line of acquisitions that show that Intel is no longer willing to bet on R&D alone to carve out its place in emerging markets like artificial intelligence (AI) and the Internet of Things (IoT).
The multiple that Intel is paying for Mobileye smashes the previous record for an acquisition of a similarly sized tech company. The purchase values the target at 41x trailing sales ($14.7bn in enterprise value on $358m in 2016 sales). According to 451 Research’s M&A Knowledgebase, that’s the highest multiple ever paid for a tech business with more than $100m in annual sales. Prior to this deal, Sirius Satellite Radio held the record from the 21.5x it paid for XM Satellite Radio 10 years ago.

Despite the valuation, Mobileye isn’t Intel’s largest acquisition. That was Altera, which it picked up in 2015 for $16.7bn to help it secure its spot in cloud datacenters and push into industrial IoT. Intel isn’t relying on a few big strategic transactions to enter emerging tech markets. In the 21 months that separate its Altera and Mobileye acquisitions, Intel purchased 11 other companies, mostly startups, including a maker of aerial drones, a pair of computer-vision vendors, and Nervana, a pre-revenue developer of AI chips (click here to see 451 Research’s estimate for that deal).

Compare that activity with 2005-2009, when Intel was plodding its way into mobile phones and never inked more than three acquisitions per year. That doesn’t mean that its attempt at the mobile phone market wasn’t costly. Between 2012 and 2014 (the last time it broke out its mobile business), Intel’s mobile unit put up a combined operating loss of $9bn and made a negligible boost to the overall topline. Intel abandoned that market as part of a restructuring midway through 2016.

Raymond James & Associates advised Mobileye on its sale, while Citigroup Global Markets and Rothschild Group banked the buyer.

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