Contact: Brenon Daly
We looked at Intersil’s purchase of Techwell on Thursday, primarily from the perspective of the senseless lawsuits that are swirling around the transaction. But fittingly for the largest acquisition of a US-based chip company since mid-2007, there’s a lot more that’s noteworthy about the deal. (Note: The equity value of the transaction is actually $450m, while the $370m figure in the announcement is the enterprise value.)
For starters, Intersil’s pickup of Techwell, which is expected to close in two months or so, is the sixth deal the chip company has inked in the past year and a half. (In another report, we noted some similarities in a pair of purchases that Intersil did back in 2008.) At $450m, the buy is the largest that Intersil has announced in a half-decade. The acquisition gets Intersil into two new markets: video security surveillance systems, where Techwell gets about 70% of its sales, and automotive displays, which accounts for the remaining 30%.
Also, the planned sale of Techwell represents the second exit at an above-market multiple in just three weeks for Technology Crossover Ventures (TCV). A late-stage investment firm, TCV owned chunks of both Techwell and RiskMetrics Group, which sold to MSCI Barra for $1.55bn at the beginning of March. TCV holds nearly 4.3 million shares of Techwell, according to the latest 13F filing with the SEC, meaning the firm stands to enjoy a $79m payday when the deal closes.
Contact: Brenon Daly
Here’s another sign that tech M&A is getting more active: plaintiffs lawyers have come slithering back into the process. Instead of chasing ambulances, these lawsuit-loving lawyers are now following deal flow. Their tactic: before the ink is even dry on an M&A announcement, threaten an investigation into possible fiduciary breeches by the board at the selling company. To most, the pesky threats are little more than extortion.
In recent weeks, plaintiffs lawyers have taken aim at Chordiant Software for agreeing to sell itself for $161.5m to Pegasystems. (Never mind that Chordiant shareholders are getting 50% more than another suitor offered for the faded CRM vendor just two months ago. And they’re getting it all in cash.) But even more absurd is the decision by a handful of law firms to target Techwell’s decision to sell itself to Intersil in a transaction that gives Techwell a $450m equity value, or an enterprise value of $370m.
Intersil’s bid (on an enterprise value basis) works out to a rather rich valuation of 5.9 times Techwell’s 2009 sales and 4.2x projected 2010 sales, according to Intersil. (We would note that’s roughly twice the valuation that the market currently gives Intersil.) Terms call for Intersil to hand over $18.50 in cash for each Techwell share, a price that represents a relatively rich 50% premium over the previous day’s closing price.
Moreover, Intersil’s bid roughly matches the highest point Techwell shares ever hit on their own, which came back in November 2006. The offer is twice the price at which Techwell went public in mid-2006 and roughly three times the level where shares were changing hands just a year ago. Yet that outperformance hasn’t stopped at least five different law firms from charging that Techwell may not have done right by its shareholders.