Contact: Scott Denne
In what’s becoming a familiar refrain in semiconductor M&A, Cypress inks its largest-ever deal with the $1.6bn stock acquisition of Spansion. The transaction, which will leave Spansion shareholders with 50% of the combined company, is the sixth $1bn-plus takeout of a chipmaker this year. Like Cypress, all but one (Qualcomm) of the acquirers had never crossed that threshold before.
What’s more, most of the dealmakers driving this year’s big purchases hadn’t previously been very active. Cypress, for example, had only bought three companies for a combined $198m in the decade prior to yesterday’s announcement. Or take Analog Devices, which snagged Hittite Microwave for $2.4bn this summer. Prior to that deal, it had only done seven acquisitions since 2002, and never paid more than $150m. Only RF Micro Devices had come close to the $1bn mark, with a $900m purchase back in 2007.
That data points to two polarized trends in the semiconductor market: the exponentially growing cost of building a new chip vendor in the past 10 years has left a dearth of modestly sized targets, while better margins through bigger scale has become a key differentiator for many businesses. Cypress’ management points to a need to get its opex margins down to 30%, from about 37%, as a motivation for the Spansion buy. A few $1bn transactions aren’t an anomaly in the chip business. According to The 451 M&A KnowledgeBase, the median deal value has risen in each of the past five years to $92m in 2014 from just $33.9m in 2010.
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