Sixteen months after its direct rival and onetime parent Emulex was swallowed up by giant chipmaker Avago, QLogic is set to also become part of a more diversified silicon company. Networking and communications semiconductor firm Cavium has agreed to acquire QLogic in a deal that values the target at approximately $1bn. Over the past few years, Cavium has been showing an increasing interest in enterprise and cloud datacenter infrastructure, looking beyond networking into the server and storage sectors. It says there’s little product overlap and plenty of synergies in the combination. Cavium has taken a long, hard look at QLogic’s product portfolio and plans to immediately kill off several legacy product lines when the transaction closes to boost QLogic’s tepid growth into the double-digit range.
Both Emulex and QLogic needed to become part of larger organizations to survive and prosper. Their key positions as suppliers to the server and storage OEM market made them highly desirable properties within more diversified chipmakers, where cross-selling opportunities are everywhere. And with increased activities focused on converged infrastructure, further opportunities are emerging. There is also a clear need for Cavium to diversify. Nokia and Cisco are its two biggest customers, while Alcatel-Lucent (now merged with Nokia) was its fifth-largest client. This isn’t quite as dangerous as it sounds, as there are many design wins spread across the different divisions of those vendors. However, it’s in Cavium’s best interest to extend its business at scale into the datacenter and storage sectors, and to diversify both its customers and revenue sources.
Cavium will pay $15.50 ($11.00 in cash and 0.098 of a share of Cavium) per QLogic share. The deal value is $1.4bn and after backing out QLogic’s cash, it gives the target an enterprise value of about $1bn. Combined, the companies generated $870m in revenue over the past 12 months, with just over half coming from QLogic. Cavium will fund the purchase with a $750m loan, $400m in new Cavium equity and the remainder in cash. The transaction is expected to close in Q3 2016.
This is the latest in a string of acquisitions that shows little sign of slowing, despite an overall deceleration of tech M&A this year. QLogic’s sale marks the eighth $500m-plus semiconductor deal of the year and puts 2016 on pace to best last year’s record tally of such transactions. The level of consolidation and remaining number of chipmakers that can command that kind of valuation point to an impending slowdown.
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