Tag: Qualcomm

Life after a breakup

Mark Fontecchio
by Brenon Daly

A lot has happened since Qualcomm announced its as-yet-unclosed $44bn acquisition of NXP Semiconductors in October 2016. The would-be buyer has successfully fended off an unwelcome suitor in what would have been the tech industry’s largest transaction. It has seen a former king at the company look to raise an army and reclaim the throne. Meanwhile, as Qualcomm’s deal has languished in limbo, more than 150 other chipmakers have been gobbled up, according to 451 Research’s M&A KnowledgeBase.

While those matters are mostly closed, Qualcomm’s bid for NXP remains open. At least it remains open for another day. The deadline for gaining the last remaining regulatory approval for the transaction is Wednesday night, just hours after it is scheduled to report fiscal third-quarter results.

Qualcomm and NXP have the green light from all of the necessary national and international bodies except one: China. Qualcomm extended its bid for NXP last April, when it refiled its application to China’s Ministry of Commerce. At the time, the company said it would walk away from the deal if it didn’t get approval on July 25 and pay a $2bn breakup fee to NXP the following day.

Right now, that appears likely to happen. Investors have put almost a 20% discount on NXP shares, compared with Qualcomm’s already raised offer of $127.50 in cash for each share of NXP. Over the past month, the discrepancy between the two prices has widened in almost every trading session. In mid-afternoon trading on Tuesday, NXP stock was changing hands at about $102.

Of course, that period has also seen a near continuous escalation in the trade war between the US and China. (We recently noted how tech acquisitions and investments have suffered pretty serious collateral damage in the ongoing spat between the two economic superpowers. China is currently on pace to purchase the fewest number of US tech providers since the country began shopping here about a half-decade ago, according to the M&A KnowledgeBase.)

Assuming Wall Street’s terminal view of the deal does indeed come to pass, what will happen to the two sides? For NXP, it’s pretty simple: deposit the $2bn termination fee into its treasury and go on with business. (It’s a pretty significant windfall for the company, which generated only $2.2bn in profit in all of last year.)

For Qualcomm, which would remain inexorably tied to the ever-maturing cellphone market, the options are a bit more limited. Nonetheless, one move we can probably rule out: Unlike Broadcom, the chipmaker that tried to buy Qualcomm, we don’t see the 33-year-old semiconductor provider announcing a multibillion-dollar purchase of a software vendor. Even two weeks on, Broadcom’s $19bn acquisition of CA Technologies is still a bit of a head-scratcher.

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AT&T’s loss is Verizon’s gain

Ben Kolada

Contact: Ben Kolada

In the land of multibillion-dollar telco mergers, sometimes the piecemeal approach is more effective than a one-and-done deal. AT&T attempted to leap over the competition with its proposed $39bn acquisition of T-Mobile USA; however, the world’s largest telecom company fell flat on its face. In failing to secure the T-Mobile takeover, AT&T is on the hook for a hefty $3bn cash breakup fee and must share spectrum in 128 cellular markets with its still-independent competitor. The spectrum loss is of particular irony, considering the primary driver for the T-Mobile purchase in the first place was the target’s spectrum assets.

Rather than pursue another long-shot acquisition, AT&T should focus on smaller spectrum purchases. That’s precisely what its competition has done. While AT&T spent months attempting to persuade politicians and federal regulators to approve the T-Mobile deal, which would have combined the second- and fourth-largest wireless carriers in the US, Verizon was dutifully seeking out smaller spectrum buys. Just this month, the company announced a pair of spectrum transactions worth a combined total of nearly $4 billion – the same price as the pretax charge AT&T will take in the fourth quarter (that charge includes the $1bn book value for the spectrum agreement with T-Mobile). Meanwhile, AT&T still hasn’t received FCC approval for its $1.9bn acquisition of certain Qualcomm spectrum licenses, which was announced back in December 2010.

Braving the IPO market

Contact: Thejeswi Venkatesh

While the IPO pipeline is getting drier, GCT Semiconductor has taken the contrarian route, filing paperwork for its proposed $100m offering. The company, a fabless designer and supplier of 4G mobile system-on-a-chip semiconductor solutions, has seen revenue triple from 2009 to $68.64m. With the mobile industry transitioning to 4G to handle the increase in rich media content, GCT thinks it could be on the verge of seeing sustained growth.

Clearly, that growth is what GCT will be selling on Wall Street. The planned offering resembles the Sequans Communications IPO, with the business profiles and financials of the two companies lining up similarly. For instance, both firms had nearly identical revenue at the time of filing and neither had an operating profit. Sequans came to market in April at 5 times trailing sales, a valuation we suspect GCT would be delighted with, since Sequans is currently trading at 2-3x trailing sales.

Across the tech sector, vendors planning to go public have instead ended up inside companies that are already public. In June, ANSYS pulled Apache Design Solutions from its IPO track and acquired it for $335m. Similarly, SiGe Semiconductor accepted a bid from Skyworks Solutions in May. With Qualcomm, Intel and Broadcom investing heavily in 4G solutions, we wouldn’t be surprised if one of these well-funded players snared GCT.

The ball is rolling in semiconductor networking M&A

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

In announcing its largest-ever deal, and paying a princely price at the same time, Broadcom is keeping the ball rolling in semiconductor networking M&A. The company’s nearly $4bn pickup of NetLogic Microsystems comes less than two months after rival Intel announced a smaller strategic play of its own, and it likely won’t be the last transaction before the buyout curtain closes.

After a dearth of big-ticket semiconductor networking acquisitions, such vendors are now becoming hot properties. Before announcing its landmark NetLogic purchase, Broadcom itself bought networking provider Teknovus in February 2010 for $123m (in an earnings call, Broadcom mentioned that Teknovus generated revenue in the single digits of millions, which implies a price-to-sales valuation far north of 10x). And in July, Intel announced that it was acquiring Fulcrum Microsystems for a price we hear was in the ballpark of $175m, or about 13x trailing sales.

Broadcom’s richly priced offer for NetLogic, which values the target at 9.2x trailing sales, likely won’t be the last deal in this sector. If you ask The Street, the next companies to get scooped up could be Cavium Networks or EZchip Technologies. Shares of both firms surged following Broadcom’s announcement. As for likely acquirers, we could point to deep-pocketed vendors Qualcomm and Marvell Technology. With $10.7bn and $2.4bn of cash in their coffers, respectively, either company could easily digest Cavium, which currently sports a market cap of roughly $1.7bn.

Will mobile payment startups pay off?

-Contact Thomas Rasmussen, Chris Hazelton

In 2006 and 2007, mobile payment startups were a favorite among venture capitalists. The promise of dethroning the credit card companies by bypassing them had VCs and strategic investors throwing hundreds of millions of dollars after such startups. During this time, a few lucky vendors managed to secure lucrative exits. Among other deals, Firethorn, a company backed with just $14m, sold to Qualcomm for $210m and 3united Mobile Solutions was rolled up for $70m as part of VeriSign’s acquisition spree. Recent prices, however, haven’t been anywhere near as rich. Consider this: VeriSign unwound its 3united purchase last month, pocketing what we understand was about $5m. Similarly, Sybase picked up PayBox Solution for just $11.4m, while Kushcash and other promising mobile payment startups have quietly closed their doors.

Last week, Belgian phone company Belgacom took a 40% stake in mobile payment provider Tunz. Tunz has taken in a relatively small $4m in funding since launching in 2007, but with VCs sidelined, we believe this investment was a strategic cash infusion to keep alive the company behind Belgacom’s mobile payment strategy. It may well be a prelude to an outright acquisition. With valuations clearly deflated and venture capitalists nowhere to be seen, we believe mobile service providers are set to go shopping for payment companies. Who might be next?

Yodlee, mFoundry and Obopay are three companies that have made a name for themselves in the world of mobile banking and payments. Each has secured deals with the major banks and wireless companies, but still lacks scale. Further, all of them are facing increased competition from deep-pocketed and patient rivals such as Amazon, eBay’s PayPal and Google’s CheckOut. Still, we believe they are attractive targets for wireless carriers or mobile device makers, who are increasingly on the lookout for additional revenue streams.

In fact, Obopay received a large investment from Nokia last week as part of its $70m series E funding round. Nokia’s portion is unclear, but Obopay tells us the stake gives Nokia a seat on its board. (Additionally, we would note that this investment comes directly from Nokia, rather than its venture arm, Nokia Growth Partners, as has typically been the case). This latest round brings Obopay’s total funding to just shy of $150m. Although we wonder about the potential return for Obopay’s backers in a trade sale to Nokia, the mobile payment vendor would clearly be a great complement to Nokia’s growing Ovi suite of mobile services. (We would also note that Qualcomm put money into Obopay and considered acquiring the company, but instead went with Firethorn.) Likewise, Yodlee and mFoundry’s roster of strategic investors and customers reads like a short list of potential buyers: Motorola, PayPal, Alltel (now Verizon), along with other large banks and wireless providers. Yodlee says it has raised more than $100m throughout its 10-year history, and mFoundry has reportedly raised about $25m.

Ad networks: What recession?

3 Comments

-by Thomas Rasmussen

Akamai just got serious about online ads. It acquired ad network acerno from i-Behavior last week for $95m in cash. (See my colleague Jim Davis’ report for more on this acquisition.) This marks not just a somewhat drastic change in focus for Akamai, but is also an encouraging sign for the remaining online advertising networks. Despite the current economic meltdown, and more specifically the declining revenue and abysmal forecasts from ad giants Yahoo and Google, everybody seems to want a slice of the multibillion-dollar online advertising market.

Including the Akamai transaction, a total of 23 online advertising deals have been inked this year. That is up more than 25% from 17 deals for all of 2007, and just four in 2006. This increase in M&A activity stands in stark contrast to the overall Internet M&A picture, where the number of deals has declined more than 10%.

Moreover, despite highly publicized warnings from VCs about the decline in available venture capital and possible exits, funding has been flowing freely and rapidly to online advertising startups. Some of the many to receive funding recently include mobile ad firm AdMob, which raised $15.7m last week for a total of $35m raised to date; Turn Inc., which raised $15m recently for a total of $37m; ContextWeb, which raised $26m in July for a total of more than $50m raised; social networking ad network Lotame, which raised $13m in August in a series B round for a total of $23m raised; and Adconion Media Group, which closed a staggering $80m in a series C round in February, bringing its total funding to more than $100m.

With IPO markets closed, these startups should all be considered M&A targets. Adconion in particular stands out because of its international reach and large base of 250 million users, 50 million of whom are in the US. It would be a nice fit for one of the large media conglomerates competing for online advertising dominance. And they have shown that they are not afraid of opening the vault to do so. VC and banker sources say funding is likely to continue for the near term since there is still a lot of buyer interest. It is unlikely to suffer the same fate as the social networking funding fad, because some online advertising companies actually make money. As this segment continues to consolidate over the next year, we suspect deal flow will likely eclipse that of the past 12 months. Mobile and video advertising ventures are likely to lead the next generation of online advertising-focused startups.

Select recent online advertising deals

Announced Acquirer Target Deal value Deal closed
October 15, 2008 Technorati AdEngage Not disclosed October 15, 2008
June 18, 2008 Microsoft Navic Networks $250m (reported) Not disclosed
April 29, 2008 Cox Enterprises Adify $300m May 2008
March 11, 2008 Qualcomm Xiam Technologies $32m March 11, 2008
February 5, 2008 AOL Perfiliate Technologies $125m February 5, 2008
November 7, 2007 AOL Quigo Technologies $346m December 20, 2007
September 4, 2007 Yahoo BlueLithium $300m October 15, 2007
May 18, 2007 Microsoft aQuantive $6.37bn August 13, 2007
May 15, 2007 AOL Third Screen Media $105m May 15, 2007
April 13, 2007 Google DoubleClick $3.1bn March 11, 2008
April 30, 2007 Yahoo Right Media $680m July 12, 2007

Source: The 451 M&A KnowledgeBase