No more Huge Semiconductor Acquisitions

15 August, 2018

IC Insights: "Mega-mergers become less likely because of the high-dollar value of major acquisitions, increasing scrutiny from regulators, rising protectionism among more countries, and growing global trade frictions"

The demise of Qualcomm’s $44 billion purchase of NXP Semiconductors in late July along with growing regulatory reviews of chip merger agreements, efforts by countries to protect domestic technology, and the escalation of global trade friction – suggest semiconductor acquisitions are hitting a ceiling.  According to IC Insights resent report, “It is becoming less likely that semiconductor acquisitions over $40 billion can be completed or even attempted in the current geopolitical environment and brewing battles over global trade.”

The global semiconductor industry has been reshaped by a historic wave of mergers and acquisitions during the past three years, with about 100 M&A agreements being reached between 2015 and the middle of 2018 with the combined value of more than $245 billion. A record-high $107.3 billion in semiconductor acquisition agreements were announced in 2015.  It was followed by 2016 with total of $99.8 billion M&A agreements.

The year 2017 saw a steep drop to a total value of $28.3 billion, and in the first six months of 2018, semiconductor acquisition announcements had a total value of about $9.6 billion (based on IC Insights’ running tally of announced M&A deals). This may be the end of the mergers and acquisitions wage during the years 2015-2017. Eight out of the 10 largest semiconductor merger and acquisition announcements occurred in the last three years.

This data covers only semiconductor suppliers, chipmakers, and providers of integrated circuit intellectual property (IP). It excludes acquisitions of software and system-level businesses by IC companies  (such as Intel’s $15.3 billion purchase of Mobileye, an Israeli-based developer of digital imaging technology for autonomous vehicles, in August 2017).  It also excludes transactions involving semiconductor capital equipment suppliers, material producers, chip packaging and testing companies, and design automation software firms.

A Lesson from Qualcomm and Broadcom

Qualcomm’s $44 billion cash purchase of NXP would have been the largest semiconductor acquisition ever if it was completed, but the deal—originally announced in October 2016 at nearly $39 billion and raised to $44 billion in February 2018—was canceled in the last week of July because China had not cleared the transaction.  China was the last country needed for an approval of the merger, and it was believed to be close to clearing the purchase in 2Q18, but growing threats of tariffs in a brewing trade war with the U.S. and moves to block Chinese acquisitions of American IC companies caused China to taken no action on the $44 billion acquisition in time for a deadline set by Qualcomm and NXP.

U.S.-based Qualcomm canceled the acquisition on July 26 and quickly paid NXP in the Netherlands a $2 billion breakup fee so the two companies could move on separately. Prior to this deal, the largest semiconductor acquisition was Avago Technologies’ $37 billion cash and stock purchase of Broadcom in early 2016.  Avago renamed itself Broadcom Limited after the purchase and launched a failed $121 billion hostile takeover bid for Qualcomm at the end of 2017.  It lowered the unsolicited bid to $117 billion in February 2018 after Qualcomm raised its offer for NXP to $44 billion.

In March 2018, U.S. President Donald Trump blocked Broadcom’s $117 billion takeover bid for Qualcomm after concerns were raised in the U.S. government about the potential loss of cellular technology leadership to Chinese companies, if the hostile acquisition was completed. After the presidential order, Broadcom executives said the company was considering other acquisition targets, with cash, that would be smaller and more focused.

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Posted in: Business , News , Semiconductors