An M&A break for chip vendors

Contact: Scott Denne

Intel’s $15.3bn acquisition of Mobileye, which closed today, extended a wave of big-ticket semiconductor deals into 2017, but only barely. Since that transaction’s announcement, only one other $1bn-plus chip purchase has printed, putting 2017 on pace to have the fewest such deals since 2013. There’s little indication that the rate of big semi acquisitions will pick up through the rest of the year.

Toshiba is currently seeking to sell its flash business, which would easily fetch more than $1bn and bring this year’s total of 10-digit purchases to three, leaving it far below recent category totals. Last year’s largest chip transactions – Qualcomm’s $39.2bn reach for NXP Semiconductors (a deal that an activist investor is pushing to renegotiate) and SoftBank’s $32.4bn pickup of ARM – featured two among the 11 companies that fetched more than $1bn. The previous year saw nine such companies get bought.

Two consecutive record years of dealmaking in the category have left behind a dearth of targets for would-be buyers. According to 451 Research’s M&A KnowledgeBase, acquirers spent $116bn on chip vendors last year, breaking the previous year’s record of $90bn – a number that itself was more than double the previous record set in 2006. And since venture capitalists have been absent from the market for a decade, the pool of companies that could command such a price has shrunk notably.

For those potential targets that remain, a run-up in stock prices makes a surge of big deals seem unlikely. The 43% growth in the PHLX Semiconductor index in the past 12 months has outpaced the broader Nasdaq by 20 percentage points. Accelerating stock prices make companies less inclined to launch a sale process or divest large units and the rising multiples that come with a rising stock won’t appeal to buyout shops – the driving force behind this year’s tech M&A market.

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