M/A-COM Technology Solutions Inc of Lowell, MA, USA, which makes semiconductors, components and subassemblies for RF, microwave and millimeter-wave applications, has agreed to acquire Mindspeed Technologies Inc of Newport Beach, CA, USA (which designs network infrastructure semiconductors for communications applications).
Mindspeed is also in advanced discussions with a potential strategic buyer for its wireless business, which it intends to sell prior to closing the MACOM transaction.
"This acquisition will position MACOM as a leading global provider of 100G optical solutions, which underscores our growth strategy in commercial communications markets," says president & CEO John Croteau. "Our interest in Mindspeed is the company's high-growth, high-margin High-Performance Analog (HPA) business as well as its cash-generating VoIP [Voice over Internet Protocol] business," he adds. "The addition of the HPA portfolio, which consists of the world's fastest crosspoint switches, ultra-low-power signal conditioners and industry-leading optical PMDs [physical media devices], aligns well with MACOM's business model - offering non-GAAP gross margins approaching 70%, long product life-cycles, and sticky customer relationships."
Mindspeed also has a communications processor business, which does not align with MACOM's long-term strategic focus, so additional options will be explored while continuing to support its customers. Separately, in the event that Mindspeed's wireless business is not sold, it will be restructured and wound down while continuing to support its customers.
"Mindspeed's leadership in silicon germanium (SiGe)-based products, along with its long-held position in enterprise video and metro markets, complements our strong position in long-haul modulator drivers based on indium phosphide (InP) and gallium arsenide (GaAs) technology," says Croteau. "This will position MACOM as a clear leader across all 100G segments, all physical-layer products, and all requisite technologies enabling us to capitalize on the expected decade-long build-out of the 100G optical market," he adds.
"This acquisition will diversify our served markets to include enterprise applications, while also enabling MACOM to strengthen our core RF and microwave position with SiGe technology," continues Croteau. "The transaction will also broaden our customer footprint and reach, by leveraging Mindspeed's strong sales channel in Asia, which complements our strength in North America and other regions."
The two companies' combined trailing twelve months (TTM) revenue is about $451m, with non-GAAP gross margin of about 50% (excluding Mindspeed's wireless business).
MACOM intends to commence a tender offer to purchase each outstanding common share of Mindspeed for $5.05 in cash (without interest), and MACOM will assume certain equity awards held by Mindspeed employees. The cash transaction is valued at $272m for Mindspeed's $132m in TTM revenue (excluding wireless business and non-recurring revenue from sales of intellectual property), or $246m net of Mindspeed's cash position of $26m as of 27 September. MACOM expects to finance the acquisition through a combination of cash on hand and its existing undrawn revolving credit facility.
MACOM estimates that the acquisition will result in substantial synergies from corporate overhead, corporate R&D overhead, SG&A (selling, general & administrative), and exiting underperforming businesses. The firm also expects the acquisition to be immediately accretive to non-GAAP earnings per share, by $0.15-0.20 in fiscal 2014 and $0.25-0.30 in fiscal 2015.
The boards of both firms have approved the transaction (which is subject to customary closing conditions and regulatory approvals). MACOM expects the transaction to close by the end of 2013.
