According to TechInsights, the value of M&A contracts between semiconductor companies was $3.2 billion at the end of the third quarter of 2023, and $3.2 billion since no major mergers and acquisitions have occurred since then. This is the highest level since 2008. It seems to have declined so far.
The amount of the acquisition includes the acquisition of semiconductor-related companies, the acquisition of certain businesses and products, the acquisition of some manufacturing plants, the acquisition of intellectual property, etc., and is calculated at the time of the announcement of the contract, not at the time of completion of the acquisition. This lower figure is in stark contrast to the acquisitions totaling more than $100 billion in 2015, 2016, and 2020. It is possible that Western Digital and Kioxia will announce a merger in 2023, and if this happens, the total amount of the M&A contract is expected to increase, but SK, which is the de facto shareholder of Kioxia (holding about 15% of the shares), has not been able to achieve this due to opposition to hynix, etc.
The average annual value of M&A contracts in the 10 years from 2013 to 2022 was $49 billion, suggesting that the total value of M&A contracts in 2023 will decrease by an order of magnitude.
The largest M&A deal of 2023 was the sale of a 20% stake in Austrian IMS Nanofabrication, a wholly owned subsidiary of Intel, to Bain Capital in the United States in June. The sale of a 10% stake in the company to TSMC in September ranked fourth in terms of transaction value. Intel first invested in IMS in 2009 and acquired it in 2015 to make it a subsidiary. IMS is the manufacturer of mask burners essential for EUV lithography machines, but Intel has given up 30% of its stake.
The second largest M&A deal was Infineon Technologies' acquisition of Canadian GaN Systems in March. In October, Infineon also acquired Switzerland's 3db Access, which manufactures ultra-wideband (UWB) low-power chips. The third largest M&A deal was the integration of semiconductor trading companies Ryoyo Electro and Ryosan.
The lowest level since 1996?
According to Mergermarket, as of August 30, 2023, the total number of M&A deals targeting North American chipmakers was 25 worth $2.5 billion, the lowest number since 1996 and the lowest amount since 2009.
Michael Hurlston, CEO of Synaptics, said three factors contributed to the decline in North American chipmaker M&A activity. First, valuations have fluctuated wildly since 2020, which means it's hard for executives and boards of directors of public companies to agree on prices. Second, due to rising tensions between the United States and China, regulatory hurdles are now higher than before. Third, after the wave of consolidation in the second half of the 2010s, coupled with a lack of venture capital for start-ups, there are now fewer and fewer targets left.
1
Valuation gaps
The first inhibitor is temporary. Semiconductor inventories soared in 2020 and 2021 due to supply shortages. Semiconductor companies accumulated large inventories through overordering during shortages, which negatively impacted their financials when dealing with inventory, and valuations plummeted in 2022. Only some have recovered, mainly Nvidia, whose graphics chips are best suited for artificial intelligence (AI) applications. ChatGPT's share price tripled this year after its launch last December sparked a frenzy for a new generation of artificial intelligence.
2
Rough regulation
While sellers expect to align with valuations at some point, triggering some deals again, the other two disincentives are more structural and more difficult to change.
Hullston noted that the process of regulating public transactions by large public transactions has become extremely difficult. Because U.S. semiconductor companies have a lot of revenue in China — accounting for 36% of their sales — almost every transaction requires approval from China's State Administration for Market Regulation (SAMR). -for-tat tensions between Washington and Beijing have also made things difficult, especially after the United States imposed an export ban on advanced semiconductors last October. Hurlston noted that the SAMR process could put the combined company in a difficult position for up to 18 months. These delays led to the collapse of the deal. For example, in early August last year, Intel terminated its February 2022 acquisition of Israel's Tower Semiconductor, citing lack of regulatory approval. "It's a very time-consuming and difficult process, which raises some concerns," Hurlston said.
U.S. semiconductor M&A activity has dwarfed China's activity for years. China surpassed the United States in 2014 in terms of the number of deals, but the trajectories of the two countries remain divergent. Boosted by Beijing's more than $50 billion state investment fund for chipmakers, China's semiconductor industry has also surpassed the United States in terms of transaction volume since 2021.
3
Narrow down your goals
Fewer M&A targets can also weaken economic activity in the long run. Shrinking venture capital interest in semiconductors has been a problem for years, as investors prefer software and biotechnology over hardware, which often requires more money over longer investment horizons, Hurlston said. While interest in AI is rising, U.S. semiconductor startups are raising money at the slowest pace in years, according to Crunchbase, which tracks venture capital.
"We don't see a lot of interesting spin-offs or interesting new startups with market appeal," Hurlston said. He added that the target shortage is a global problem and not unique to the United States. In fact, semiconductor M&A is declining worldwide, with the exception of China.
Instead of acquiring other chipmakers, North American semiconductor companies have expanded into the software space, most notably Broadcom's acquisition of VMware in May 2022. Nvidia, for its part, has made some small acquisitions or raised money — mostly software or artificial intelligence companies — as last year's attempt to buy SoftBank's Arm Holdings was canceled due to regulators. Instead, Nvidia has been in talks to become a major investor in Arm's upcoming Nasdaq listing.
Link to original article
https://news.mynavi.jp/techplus/article/20240130-2873096/
Source | Semiconductor Industry Watch (ID: icbank) is synthesized from mynavi
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