The past few years have seen a wave of major mergers and acquisitions in the semiconductor industry, many of them with strong implications for the mobile industry landscape. The latest is a $21bn all-stock deal for Analog Devices (ADI) to buy Maxim, which will create a stronger challenge to Texas Instruments in the analog chip market, while extending ADI’s reach in the 5G and automotive spaces.
This is the third largest deal of recent years, behind Avago’s purchase of Broadcom for $37bn and Softbank’s of ARM for $32bn. It is also ADI’s second large acquisition in three years, having bought Linear Technology for $14.8bn in 2017 to expand its analog business.
Vincent Roche, ADI’s CEO, said the Maxim deal is part of the company’s vision to provide a broad portfolio of chips to bridge the physical and digital worlds, as well as enabling ADI to develop more complete solutions in certain key markets. In particular, Maxim adds expertise in signal processing and power management, and has a good position in automotive and data center sectors, while ADI’s strongholds are in mobile, industrial and healthcare markets.
Many of Maxim’s new launches in the past year relate to healthcare wearables, IoT, power management, security and automotive safety.
Martin Cotter, SVP of worldwide sales and digital marketing at ADI, highlighted mobile communications and 5G as one complementary area. He told EETimes: “The combination of Analog Devices and Maxim Integrated has many benefits for customers … an area of advantage for the customer is the provision of more complete communication solutions, enabling the secure transmission, transportation and powering of data from antenna to cloud.”
He also offered another example in the automotive space, where “high speed GMSL [gigabit multimedia serial link] will complement audio A2B and allow a safer driving experience with enhanced in-cabin infotainment”.
In 2019, ADI was the second largest vendor of analog chip sales with 10% share of a fragmented market. Acquiring Maxim will make it a bigger contender to Texas Instruments, which had 19% share last year, and though it will remain in second place on current performance, at about $3bn behind TI, it will be in an improved position to target the leadership spot after the deal closes (expected in summer 2021).
The transaction will value ADI at more than $68bn. It will acquire 69% of the merged company, offering 0.63 ADI shares per Maxim share, with existing shareholders owning the remaining 31%. The transaction has been approved by both boards.
The companies believe their marriage will generate $275m in cost savings within two years of closing, and be accretive to adjusted earnings per share within 18 months. These results would be important to ADI in a pressurized market where its sales have fallen since 2018, and where even TI is forecast to suffer a 14% sales decline this year. Maxim has also seen sales decline in 2018 and 2019.
Other benefits for ADI include the removal of a competitor in several markets where it has targeted growth, such as healthcare and auto; and the addition of more experienced analog engineers.