After a two-year buying spree unprecedented in magnitude, the frenzy of merger and acquisition activity that dominated the semiconductor industry cooled - somewhat - in 2017, with the number of targets considered ripe for acquisition depleted and regulatory scrutiny heightened.
The total value of semiconductor industry M&A deals announced last year fell to about $27.7 billion, down from $107.3 billion in 2015 and $99.8 billion in 2016, according to market watcher IC Insights. While the total value of deals was down significantly, it was still more than twice the annual average for industry deals during the first half of this decade, about $12.6 billion, according to IC Insights.
IC Insights' numbers don't factor in the $103 billion bid made by Broadcom to acquire Qualcomm late last year. That offer was rejected by Qualcomm's board, although a proxy fight has since ensued that could turn the tides if Broadcom is successful. Had that bid been accepted, 2017 would have been the biggest year ever for semiconductor industry deals.
As it stands, 2017 featured about two dozen announced deals, but 87 percent of the total value for the year came from just two: the $18 billion deal to acquire Toshiba's memory chip unit by a consortium led by private equity firm Bain Capital (which still faces regulatory challenges) and the $6 billion acquisition of Cavium by Marvell. Without those two deals, IC Insights noted that the total value of deals last year would have been below the average established between 2010 and 2014.
The Bain-Toshiba and Marvell-Cavium acquisitions were the only semiconductor industry M&A deals announced in 2017 that exceeded the $1 billion threshold. By contrast, IC Insights noted that 10 such deals were announced in 2015 and seven in 2016.
The average industry deal size last year — $1.3 billion — was boosted dramatically by the two large acquisitions, IC Insights noted. Without those two, the average deal would have been worth just $185 million, according to the firm. By contrast, the average industry M&A deal size was $4.9 billion in 2015 and $3.4 billion in 2016, IC Insights said.
The M&A feeding frenzy was driven largely by a huge expansion in the market capitalization of semiconductor firms and their desire to offer more broad product portfolios to take advantage of emerging markets for semiconductors such as the Internet of Things. Those fundamental trends still hold true, and there are certainly firms that remain ripe for acquisition or merger.
However, with so many chip companies being swallowed up by rivals over two years, a pause in activity so that companies could "digest" their purchases — integrating separate companies together into one — was widely expected. Also, growing regulatory scrutiny faced by the acquisition of U.S. and European firms to entities based in China likely also had a chilling effect on activity.
— Dylan McGrath is the editor-in-chief of EE Times.