Looking at semiconductor industry mergers and acquisitions from Navitas
Latest update time：2022-09-17
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introduction
In the middle of last month, Navitas, one of the leading gallium nitride companies, announced its financial report for the second quarter of 2022. Revenue increased by 28% from the previous quarter, still mainly derived from the consumer electronics industry. In last quarter's earnings call, management said third-generation GaNFast products were replacing the higher-cost first two generations, allowing the company to absorb a 20% increase in foundry fees from its foundry, TSMC, and therefore gross margins. It can be the same as 2021. However, the impact of the weak consumer electronics industry this year has exceeded expectations, causing the company's gross profit margin to decrease by 200 basis points month-on-month. The lower-cost fourth-generation GaNFast product has just begun to send samples, and it will take half a year to reverse the situation.
As a long-term observer who has continued to pay attention to the company before its listing, the author has to say that Navitas' main business was more than stable this quarter and there were not many surprises. However, the management was obviously unwilling to accept this, so it released blockbuster merger and acquisition news on the day when the financial report was released last month.
a thrilling leap
On August 15, Navitas announced that it would acquire GeneSiC, a fabless silicon carbide power device company, for approximately US$100 million in cash, 24.9 million shares of Navitas, and an additional consideration of up to US$25 million based on sales targets.
The total acquisition price benchmarked Qorvo’s acquisition of another silicon carbide start-up, UnitedSiC, in November last year
. The latter’s transaction price was rumored to be US$227 million.
GeneSiC’s development history in silicon carbide devices and its silicon carbide MOSFET technology roadmap (Source: GeneSiC, 01Xinwen)
GeneSiC was established in Virginia, USA in 2004. The company is small, with a total of 19 employees before the acquisition. Riding on the trend of third-generation semiconductors in recent years, the company's performance has grown rapidly. Revenue in 2022 is expected to be US$25 million, with an annual growth rate of more than 60% and an EBITDA profit margin of 25%.
As the second public acquisition since the establishment of Navitas, GeneSiC is a suitable target in the power device segment, because there are currently very few silicon carbide companies left in the United States that have both technical reserves and a certain scale, and the price is not high. .
Therefore, GeneSiC is exactly in line with Navitas’ current needs for company scale expansion and the depth of its own capital. First of all, GeneSiC is good at silicon carbide power products, including silicon carbide diodes and MOSFET single tubes, which can be used in PFC, DC/DC and DC/AC parts of the power supply, in line with Nanovi’s requirements in electric vehicles, new energy and server power supplies. strategic development direction.
Secondly, as a Fabless company, GeneSiC's products are produced through outsourcing - silicon carbide substrates and epitaxial wafers come from multiple suppliers, X-Fab is its wafer foundry, and packaging and testing foundries are located in Asia. At the same time, GeneSiC focuses on the product segment of silicon carbide power devices and does not involve traditional silicon devices. These two factors make the company small but beautiful, with light assets and a dedicated R&D direction. Therefore, the US$240 million in cash in Navitas' capital account is sufficient to complete the acquisition, and no additional financing is required.
GeneSiC’s silicon carbide supply chain is mainly outsourced (Source: Navitas)
Finally, the synergy between Navitas' own business and GeneSiC has enabled the merged Navitas to have a presence in the two major development directions of third-generation semiconductors, namely gallium nitride and silicon carbide, becoming the world's first pure-play semiconductor company. Compound Power Semiconductor Corporation. According to management, this not only brings new customer groups to Navitas, but also greatly increases the proportion of components that can be covered in the BOM at existing customers, which means that
the markets and customers that Navitas can reach have both been realized. Incremental growth and stock growth were achieved
.
This acquisition of Navitas has brought topicality and imagination space beyond the past to the capital market. As a result, Navitas' stock price jumped 26% on the second day after the news was announced. This also indirectly explains why Navitas has avoided calling itself a gallium nitride company in the past, but has always stated in public that it is a power semiconductor company. It seems that the management has already had a plan.
The acquisition of GeneSiC brings new customer groups to Navitas and consolidates its presence in key application areas (Source: Navitas)
Not only that, Navitas also announced in July that it acquired VDD Tech, a Belgian micro-startup company, and gained its technology accumulation in digital isolators. Through this acquisition, Navitas can optimize isolator designs specifically for third-generation semiconductors based on the characteristics of silicon carbide and gallium nitride devices to achieve safety between low-voltage control and driver chips and high-voltage gallium nitride and silicon carbide switching devices. Isolated from high performance.
Functional block diagram of digital isolator, and comparison of VDD’s technical capabilities (Source: Navitas, 01Xinwen)
Although the price of digital isolators is only a few tens of cents, and the total price in the system BOM is only about four US dollars, this is
Navitas' first step towards becoming a third-generation semiconductor system solution provider
.
Through this series of acquisitions, Navitas' product portfolio not only includes two popular compound power devices, but also has the design capabilities of some peripheral analog chips.
Semiconductor industry mergers and acquisitions
Navitas' acquisition of GeneSiC and VDD Tech reflects the current situation of the semiconductor industry and the capital-intensive and technology-intensive characteristics of this industry - Moore's Law has come to an end, but the required R&D intensity and capital intensity continue to increase, making the industry Many companies have to use mergers and acquisitions as a growth strategy to replace organic growth, in order to quickly expand market share, establish economies of scale, become leaders in one or more segments of the industry, master the direction of technological development, and reduce costs. development costs and the right to determine product pricing.
At the same time, new application scenarios are emerging one after another, including smart electric vehicles, artificial intelligence, AR/VR, high-speed mobile communications and many other application fields. These require traditional chip manufacturers to no longer just provide a single device, but based on the inherent needs of these applications. understanding and provide customized and systematic solutions. Therefore, semiconductor companies have to fill technology gaps, absorb specific talents, improve product portfolios, and further provide application solutions through mergers and acquisitions.
Total semiconductor industry M&A activity since 2014, in billions of dollars (Source: IC Insights)
According to statistics from Omdia, a technology industry research and consulting organization, in the four and a half years from 2018 to June 2022, there were 122 large-scale mergers and acquisitions in the semiconductor industry. This does not include some public acquisitions. For example, CoreSource Systems MPS acquired micro-silicon carbide startup LogiSiC.
In 2020, industry mergers and acquisitions reached a historical peak of US$118 billion, including AMD's acquisition of FPGA leader Xilinx, and the acquisition of one of its main competitors, Maxim, by analog device manufacturer ADI announced in 2020 and completed this year. Integrated.
Although the total value of semiconductor M&A transactions in the second half of 2021 was only US$4.4 billion, the lowest in ten years, the total value of M&A in the first half of this year has reached US$20.6 billion, exceeding the same period last year, showing that semiconductor M&A has not lost momentum. However, compared with before, semiconductor mergers and acquisitions have gradually entered a stable period in recent years, and small and medium-sized mergers and acquisitions such as Navitas' acquisition of GeneSiC have occurred with increasing frequency.
M&A type
According to the product portfolio, market scope and
customer groups of both parties, the mergers and acquisitions of semiconductor companies can be divided into five categories: vertical mergers, horizontal mergers, similar mergers, hybrid mergers and market expansion mergers.
The first is
Vertical Merger
- there is no direct competition between the two parties in the event, and indirect competition is almost negligible, because the initiator and target company of the merger operate separately at different production stages in the semiconductor industry chain. In the value chain, they may be customer and supplier relationships. As a result, this type of merger has traditionally streamlined supply chain operations, improved efficiency and cut procurement costs.
There is a successful example in the development history of China's semiconductor industry, which is the acquisition of Canada's Dynex by Zhuzhou CRRC Times Electric (then known as CSR Times Electric) in 2008. Previously, Times Electric was a system-level manufacturer mainly engaged in the development, manufacturing and sales of electric transmission converters and control systems for urban rail trains, while Dynex was a device company that provided high-power semiconductor products and was located upstream of Times Electric's supply chain. After the acquisition of Dynex, Times Electric's core technical capabilities have been extended to the high-power semiconductor business, which has become the cornerstone of the company's entry into the new energy and electric vehicle industries.
In addition, when chip supply is in short supply, vertical mergers and acquisitions have a special effect on the semiconductor industry, that is, they can ensure production capacity. For example, ON Semiconductor's acquisition of GTAT, Rohm's acquisition of SiCrystal, and STMicroelectronics' acquisition of Norstel are all aimed at controlling the supply of key upstream silicon carbide substrates and ensuring silicon carbide devices and modules, one of the company's future strategic businesses. You will not watch your competitors seize the market share that should belong to you due to lack of substrate supply.
By acquiring GTAT, ON Semiconductor has integrated almost all value links in the power silicon carbide industry chain (Source: onsemi, 01Xinwen)
The counterpart to vertical mergers and acquisitions is
horizontal mergers and acquisitions (Horizontal Merger)
. Both parties to the merger operate in the same semiconductor segment or segments and sell similar and directly competing products. In order to reduce competitors, expand market share, reduce product costs and reduce operating expenses through scale and synergy, horizontal mergers and acquisitions often become the choice of large semiconductor companies. Horizontal mergers can also allow the acquirer to go from 50 to 100 in some product areas, which is another reason why this kind of mergers and acquisitions are common among large companies in the industry.
Recent examples of horizontal mergers and acquisitions include ADI's successive acquisitions of Maxim Integrated and Linear Technologies, two well-known companies in the industry, in order to consolidate its dominant position in high-performance analog chip technology and market. Renesas's successive acquisitions of Dialog, IDT and Intersil are also aimed at rapidly expanding its product array in the field of analog semiconductors, and at the same time reducing operating expenses by integrating sales and agency channels. Infineon's acquisition of IR and ON Semiconductor's acquisition of Fairchild not only rapidly expand the product array in the field of analog semiconductors, but also increase the capacity utilization of its own wafer fabs and packaging departments.
ADI's acquisition of Maxim expands its product depth and breadth in analog and mixed-signal, power management, and digital and sensors (Source: ADI)
The third type of merger and
acquisition is called Congeneric Merger
, which means that although both parties are targeting the same semiconductor segment and even the same customer base, they provide different products. In addition, products often complement each other and even achieve mutual success, so competition is mostly indirect rather than direct. The aforementioned acquisitions of GeneSiC and VDD Tech by Navitas fall into this category.
Similar mergers and acquisitions can allow the acquirer to quickly establish a product line from 0 to 1, or expand from 0 to 10 or 100 in a new business area. Compared with endogenous growth, this kind of merger can greatly shorten the product line incubation time, help the company immediately launch business in a certain key area, and compete for market share. It can be said that using funds in exchange for time and space.
At the same time, the new entity combines the product portfolios of the two original companies. For small ones, it can achieve cross-sell (Cross-sell), and for large ones, it can form a combined product sales plan (Winning Combo) to provide customers with integrated solutions.
For example, after the acquisition, Navitas can use GeneSiC's silicon carbide products to take advantage of the current trend of vehicle electrification to immediately develop with potential customers such as OEMs and first-tier suppliers in key applications such as inverters and on-board chargers. Cooperate instead of waiting until its own automotive-grade gallium nitride products mature to gain significant revenue in 2025. At the same time, Navitas can further integrate silicon carbide, gallium nitride and digital isolator products, as well as drive control or signal chain products acquired again in the future (if any), and package them into a third-generation semiconductor power solution. Make customer development simpler and time-to-market shorter.
Other examples include Intel's acquisition of Altera and AMD's acquisition of Xilinx, which directly replaced the CPU duo as the top two suppliers in the FPGA market and formed synergies with existing product lines.
Xilinx’s FPGA and adaptive SOC products enable AMD’s computing platform to expand from the data center to edge AI (Source: AMD)
The fourth category is
Conglomerate Merger
, also known as "Compound Merger". The two companies involved belong to different industrial fields, so they cannot be completely counted as mergers and acquisitions in the semiconductor industry. Although this type of merger can help the new entity diversify its business and weaken the fluctuations in company performance caused by the strong cyclicality of the semiconductor industry, integrating companies in different industries means that the core business of the new entity may need to be transformed, and companies in different industries Culture also needs to be tempered effectively, which is extremely challenging for any company.
Intel's acquisition of McAfee is an example. The former acquired security software company McAfee for US$7.7 billion in 2010. Its original intention was to integrate the latter's software-based security technology into hardware to significantly improve the security of Intel's chip products. However, the two companies have significant differences in corporate culture and product development strategies, which forced Intel to sell the McAfee business for US$4 billion after 10 years of struggling with little results.
The second-largest M&A transaction in the entire technology industry this year, Broadcom Inc's acquisition of virtualization software provider VMware in a cash and stock transaction of US$61 billion is also an example of a hybrid merger. Prior to this, Broadcom also acquired IT management software giant CA Technologies for nearly US$19 billion, and spent US$10.7 billion to acquire Symantec's enterprise security business. Can "Merger and Acquisition Maniac" Hock Tan transform this semiconductor giant from its core business of designing and selling chips into an enterprise software and services company through these cross-border blockbuster acquisitions, thereby obtaining higher operating profits? Rate, let’s wait and see.
Broadcom's software department intends to integrate three software companies to establish a closed loop of enterprise security applications and achieve company transformation (Source: Broadcom)
Finally, there is
the Market Extension Merger
, in which participating companies are companies that provide similar products in different markets. Through the merger, the new entity will have an expanded product portfolio to sell to a larger market. For example, if one company sells goods domestically and another offers similar products in Europe, the combined company will be able to expand its market reach into China and Europe.
A few years ago, the author learned that a European small and medium-sized semiconductor company with unique technology hopes to enter the Chinese market to expand revenue and profits. At that time, a certain domestic industry company had just received a large amount of funds and wanted to explore foreign markets. After being introduced by an intermediary, the two companies established contact and discussed mergers and acquisitions. If a cooperation is reached, not only can the new entity expand its market and customer scope through market expansion, but it can also integrate its respective advanced technologies and improve the technical advantages of its products. Therefore, it will also have the characteristics of similar mergers and acquisitions.
Unfortunately, domestic companies evaluated the European company and thought the price was too high and gave up on the merger. However, the latter has empowered a series of products with excellent performance through its unique technology, including silicon carbide power products that are currently hot in the market, making its valuation far higher than before. It is rumored that another domestic capital has acquired this company and is currently introducing technology and product launch.
Merger and acquisition target evaluation
If small and medium-sized mergers and acquisitions become the mainstream of the semiconductor industry in the future, it means that when merger and acquisition initiators seek investment targets, the fault tolerance rate will become smaller, because the product lines of the merged enterprises may be relatively single. Once they are not suitable, the scale effect and Synergies are unlikely to offset acquisition costs. So how does the acquirer judge the value of the deal? According to the recommendations of the consulting agency Accenture, it should be considered from three key dimensions, namely technology/product introduction, operational optimization and talent absorption.
The first is the introduction of technology and products. From the previous classification of mergers and acquisitions, we can see that acquiring new technologies and expanding product portfolios are often the main reasons for mergers between semiconductor companies. According to statistics, about 35% of acquisitions are aimed at filling gaps in specific products and technologies. Therefore, the acquirer must carefully plan the technology and product roadmap before the transaction, and ensure that the acquired company can fit its own vision. Marvell successively acquired Inphi and Innovium in 2021 in order to deepen its technical reserves and product layout in data centers and cloud computing. The author's previous article "
Building a Chip Product Portfolio Based on Synergy Effects"
did some discussion on this.
In addition to the long-term contributions brought by the acquisition of technologies and products, semiconductor companies also try to optimize the company's operations through acquisitions and improve the company's competitiveness in a shorter period of time. These initiatives include integrating supply chains and sales channels, improving performance management and personnel motivation. Examples include Nexperia's acquisition of the Newport fab in order to establish a more independent production layout, and Infineon's acquisition of Cypress to try out a new business model, SaaS.
Finally, the ability to attract talents is also one of the driving forces for whether semiconductor mergers and acquisitions occur, which is becoming increasingly important as the semiconductor industry gradually changes from internationalization to localization. Chip companies urgently need to expand their core team of engineers who are familiar with various cutting-edge applications (including but not limited to artificial intelligence, cloud computing, and electric vehicles) and have been tempered by years of chip development to help companies deepen their industry knowledge reserves and accelerate product development and mass production. Therefore, before the merger begins, the initiator of the acquisition needs to think about how to retain the technology and production team of the acquired party to the maximum extent, while avoiding the loss of its own engineers.
All in all, when semiconductor companies engage in mergers and acquisitions, they need to more carefully evaluate the goals they pursue, analyze the reasons for mergers and acquisitions, and obtain the maximum value of mergers and acquisitions from three key dimensions.
summary
Starting from the latest acquisition case announced by Navitas, this article introduces the merger and acquisition situation in the semiconductor industry, then sorts out the different types of mergers and acquisitions of chip companies, and finally discusses how to evaluate and obtain the value of M&A transactions.
References:
-
Omdia, "Competitive Landscaping Tool Mergers and Acquisitions Overview 2Q22"
-
IC Insights, "The McClean Report 2022"
-
Gregg Albert, Garrett Oliveria, Accenture, "Semi M&A: How to extract value from smaller deals"
-
01Xinwen, "Building a Chip Product Portfolio Based on Synergy Effects"
-
Feng Ning, semiconductor industry leader, "Chip M&A, the curtain opens"
-
Huang Yefeng, "Renesas Acquires Dialog, What's the Reason?" 》
*Disclaimer: This article is original by the author. The content of the article is the personal opinion of the author. The reprinting by Semiconductor Industry Watch is only to convey a different point of view. It does not mean that Semiconductor Industry Watch agrees or supports the view. If you have any objections, please contact Semiconductor Industry Watch.
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