A wave of mergers and acquisitions in the semiconductors is hard to characterize as “anything but M&A mania, or even madness,” according to a leading U.S. industry research group.
In the first six months of 2015, announced semiconductor acquisition agreements had a combined total value of $72.6 billion, nearly six times the annual average for merger and acquisition deals struck during the five previous years (2010-2014), noted Scottsdale-headquartered IC Insights in a research note on Tuesday.
“It would be hard to characterize the huge wave of semiconductor mergers and acquisitions occurring in 2015 as anything but M&A mania, or even madness,” the company said.
Three acquisition agreements in the first half have already put 2015 into the M&A record books: NXP Semiconductors announced an agreement in March to buy Freescale for $11.8 billion in cash and stock., Avago in May announced a deal to acquire Broadcom for about $37 billion in cash and stock, and then four days later on June 1, Intel agreed to buy Altera for $16.7 billion in cash. Avago’s purchase of Broadcom is the largest acquisition agreement ever reached in the IC industry, IC Insights said.
Market share expansion, Internet of Things opportunities, the rising costs of research, and China’s aggressive new focus on self-sufficiency in the semiconductor industry are all driving the M&A surge, the researcher said.
“In many ways, 2015 has become a perfect storm for acquisitions, mergers, and consolidation among major suppliers, which are seeing sales slow in their existing market segments and need to broaden their businesses to stay in favor with investors,” IC Insights said. “Rising costs of product development and advanced technologies are also driving the need to become bigger and grow sales at higher rates in the second half of this decade. The emergence of the huge market potential for the Internet of Things is causing major IC suppliers to reset their strategies and quickly fill in missing pieces in their product portfolios.
“China’s ambitious goal to become self-sufficient in semiconductors and reduce imports of ICs from foreign suppliers” has led to the launch of a number of acquisitions by Chinese companies and investment groups, IC Insights said.
The increasing number of mergers and acquisitions, leading to fewer major chip manufacturers and suppliers, is one of major changes on the supply side of the business that point to the maturing of the industry. In addition to the M&A wave currently taking place, trends such as a lack of entry points for startup chip manufacturers and a decline in capital expenditure as a percent of sales ratio promise to dramatically reshape the semiconductor industry landscape over the next five years, IC Insights said.
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