LONDON – Mindspeed Technologies Inc., a fabless networking chip company has agreed to acquire PicoChip Ltd, a provider of chipsets for cellular communications such as femtocell basestations, for $51.8 million.
There is an "earn-out" clause that could increase the deal value by $25 million on the achievement of certain unspecified milestones and the earn-out is payable in the first quarter of calendar 2013.
The deal as currently structured is based on a mixture of $27.5 million in cash and 5.19 million new shares of Mindspeed common stock.
The deal will create an enlarged Mindspeed (Newport Beach, Calif.) with a 70 percent market share in 3G/HSPA small cell basestation market and a good pipeline in LTE small cell market, Mindspeed said in a note to investors.
However, the deal would appear to represent a damage limitation exercise for venture capital investors in PicoChip.
PicoChip was founded in 2000 and applied a highly parallel DSP approach to basestation standards implementation. Since then the company is thought to have received more than $100 million from venture capital firms and strategic investors. These include: Atlas Venture, Highland Capital Partners, Pond Venture Partners, The Rothschild Group, Scottish Equity Partners, AT&T, Intel Corp. and Intel Capital and Samsung Ventures America. The company raised about $20 million in series E round of finance announced in June 2010.
The deal has been approved by both boards of directors and is expected to close in the first quarter of 2012, subject to customary and other closing conditions.
The investment is impressive but when you consider the future for this technology and competition that's emerging then you should wonder how much more investment it will require to future proof this technology. More and more new technology are coming up everyday and investing a large sum could backfire very quickly. For more info on investments check out http://www.invest.org.nz for all investment opportunities in New Zealand
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@peter.clarke Yes, in the free market something, be it goods or service, is worth what somebody will pay for it. Of course, labor unions and monopolies throw a wrench (spanner for you Brits) into the works. Free markets aren't always so free.
Who says it is a low valuation?
The "market" does not care how much money was spent over the previous 11 years and has set this as a "fair valuation." Something is only worth what you can get somebody else to pay for it.
It is notable that the VCs who invested in PicoChip get some money now and some stock in Mindspeed. Executives at Mindspeed and PicoChip are very bullish about the markets for small cell basestations and believe that the holding those VCs have effectively taken in Mindspeed will continue to pay them a return.
But that is the nature of the free market; a mix of hope and experience. Those VCs may think the enlarged Mindspeed is a good a bet and go along for te ride or they may choose to cash out and be pleased to get some money back on their original investment, albeit less than they invested.
Perhaps not semiconductors in general, but more that femotocells have lost their glamor. Glamor that may not have been deserved in the first place. BTW PicoChip is kind of mobile, since femtocells purport to support cellphones...
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