Contact: Scott Denne
In picking up Symmetricom for $310m in cash ($230m in enterprise value), Microsemi is taking on a company whose margins are a far cry from its own goals. The semiconductor company has been fruitlessly chasing a self-imposed target of 60% profit margins and 30% operating margins.
Although adding a new element to an already challenging margin target, the deal will be accretive to its earnings per share.
Microsemi posted a 57% profit margin in its most recent quarter, although its operating margin of 10% is much farther away from its goal. Symmetricom reported a 45% profit margin and a negative operating margin. That makes this deal a bigger challenge than Zarlink, its last big purchase, whose margins were just a few points shy of Microsemi’s. Despite that, management claims Symmetricom will be running at its 60/30 target within 12 months of the deal’s close.
As it has in past acquisitions, Microsemi will prune legacy Symmetricom assets worth $10-15m in sales in order to give the target more favorable operating and profit margins. With this deal, Microsemi looks to add to its communications and defense businesses by picking up an asset that will, eventually, have a similar margin profile to itself.
Microsemi employed the same strategy in its acquisition of Zarlink in late 2011. With that deal, Microsemi planned to immediately chop 20% of Zarlink’s revenue-generating assets.
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