Taking chips off the table

Contact: Brenon Daly

A half-decade after financial buyers did their best to sweep up the semiconductor industry, it’s now the fellow corporate acquirers’ turn to continue the dealmaking. On Wednesday, Applied Materials Inc announced that it would hand over $4.9bn for Varian Semiconductor Equipment Associates. The deal between the chip equipment makers comes on the heels of two other multibillion-dollar transactions in the semiconductor sector earlier this year: Texas Instruments’ reach for analog chip maker National Semiconductor and Qualcomm’s bid to expand beyond cellular chips with its purchase of Atheros Communications.

All three of this year’s significant chip acquisitions rank among the 10 largest deals in the industry. However, all of the corporate transactions are still looking up at the buyouts done by private equity (PE) shops back when credit was cheap and easy. In fact, the total spending on the trio of landmark deals so far this year ($15bn) is less than the $17.6bn take-private of Freescale Semiconductor by a PE consortium in 2006.

Of course, bigger isn’t necessarily better. And we suspect that corporate buyers would hope to be at least a little more successful with their acquisitions than the buyout club has been with Freescale. Although Freescale is currently on file to once again be a public company, the buyout has been a tough one for its owners. Much of that difficulty stemmed from the fact that the PE shops put nearly $10bn of debt on the company. (It paid more than a half-billion dollars last year to service the debt.) Meanwhile, under its new ownership, Freescale is actually smaller than it was before the buyout.