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Acuity Market ReviewSemiconductor Industry – 2018
December 2018
©Acuity Advisors LLP
1Acuity Advisors | Semiconductor Industry Market Review | Jan 2018Acuity Advisors | Semiconductor Industry Market Review | December 2018 1
Source: Capital IQ, Acuity Intelligence
50
100
150
200
250
300
EDA Fabless IC
Fabrication Integrated IC
IP Providers Tools, Test & Verification
S&P 500 Index
1
4.1x
3.3x
2.2x
2.2x
3.8x
2.2x
4.4x
3.4x
1.7x
1.6x
3.4x
1.7x
Introduction
Market Dynamics
Semiconductor Share Price, by Sub-sector (Jul 2016–Nov 2018, Rebased to 100)
Acuity Market Review: Semiconductor Industry – 2018
Sub-sectors
Semiconductor Trading Comparables (2017–18)
Median EV/Revenue
Median EV/EBITDA
Q3 2018 YoY Rev Growth
11%
10%
9%
9%
-1%
13%
EDA
Fabless IC
Fabrication
21.9x
15.9x
9.1x
9.5x
14.0x
11.3x
24.0x
15.0x
7.3x
7.6x
10.4x
8.0x
17%
18%
26%
26%
15%
20%
LTM Q3 2018 EBITDA Margin
12 Months ended 30th Sept 1712 Months ended 30th Sept 18
▪ When taking a longer term view of 28
months, the industry has been able to
outperform the S&P 500 index by 22%
on average, and the industry’s trading
multiples continue to remain robust,
with EV/Revenue multiples of 2–4x and
EV/EBITDA multiples of 7–24x. EDA,
Fabless IC and IP Providers are trading
at the higher end of these ranges.
▪ There is an increase in political risk due
to the industry coming into the
crosshairs of the recent US-China trade
war tensions and the new US act that
gives CFIUS an expanded scope of
power in industries deemed of national
security, such as semiconductors.
▪ The failed bid of NXP Semiconductors
by Qualcomm exemplifies the relative
fragility of the European market in
relation to deal making. This became
apparent by the interference of
Chinese regulators on the deal.
▪ Global fab tool spending is projected to
end up 14% higher in 2018, with 59 fab
construction projects starting in 2017
and 2018. Combining this with the
increase in R&D expenditure, as a
percentage of revenue, and that
European chipmakers are of relative
smaller size, than their US
counterparts, could mean a new
acquisition wave in Europe in 2019.
▪ Themes, such as the increase in traffic
over communication networks and the
rise in autonomous and connected cars,
could translate into an increased
demand in semiconductors for the
telecoms and automotive industry.
▪ 2018 saw continued headlines about the semiconductor industry from a regulatory and trade perspective. This is
reflected in the recent volatility of share prices, resulting in an annual return on equity of 8%, compared to the S&P
500’s 14%, over the past 2 years. On the other side, from infotainment and comfort to chassis and powertrain, we
see an above industry growth of about 2-3% for the automotive semiconductor industry. This is also consistent with
global billings growth of 20% for the last 14 consecutive months, reaching $149 bn for the year in April 2018.
106.8%
42.4%
72.5%54.2%
29.6%
46.2%
Integrated IC
Tools, Test & Verification
1Q 18 2Q 183Q 16 4Q 16 1Q 17 2Q 17 3Q 17 4Q 17
IP Providers
30.5%
Returns
3Q 18 4Q 18
2Acuity Advisors | Semiconductor Industry Market Review | Jan 2018Acuity Advisors | Semiconductor Industry Market Review | December 2018 2
3%10%
19%
22%6%
41%
Global Mid-Market1 Deal Values & Volumes2, by Sub-sector (2018*)
Global Mid-Market1 Deal Values & Volumes2 (H2 2016–18*)
Transactions Analysis
Top Mid-Market1 Deals (2018*)
▪ Global mid-market transaction volumes stood at 69 deals up to August 2018, valued at $1.0 bn, compared to the
104 deals recorded in CY17, with a combined value of $3.5 bn. Tools, test, and verification companies made up the
largest proportion of these, accounting for 52% of the total deal value. This demonstrates that the mid-market
slow down in M&A activity, but goes hand in hand with the previously outlined increase in FAB tool spending.
▪ Vertical integration across the value chain, and the deployment of new distribution channels is of prime importance
for semiconductor companies to be able to offset the effects of average selling price (ASP) erosion on revenues.
▪ Wide end-use applicability and the swift speed of technology turnover are driving companies to actively acquire
newer technologies and explore emerging markets (especially Asia and North America). Consolidation in existing
markets and the divestment of assets in non-core business areas are both being pursued to strengthen market
positions and maximize share of wallet.
$895
$394
$1182$1076
$728
$581
$415$487
$168
3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18*
22 30 28 24 22 33Deal
Volume
Source: Capital IQ, Company Websites, Acuity Intelligence; Note: 1. Mid-Market – Transactions with deal values in the range $15.0–250.0m, 2. Includes deals with undisclosed transaction values; *includes deals announced up to 31 August 2018
Acquired by Acquired by Acquired by Acquired by Acquired by
5%
37%
6%
52%
Value
Volume
2426
Deal Values In $’m
Acuity Market Review: Semiconductor Industry – 2018
12
Date: 10/05/2018 Value: $134.7m
EV/Revenue: 1.0xEV/EBITDA: 11.2x
Date:03/04/2018Value: $98.0m
Date: 09/05/2018Value: $51.8m
Date: 26/04/2018Value: $17.0
EV/Revenue: 1.7x
Date:28/03/2018Value: $11.3m
EV/Revenue: 0.9x
TEL NEXX - Subsidiary of
EDA Fabless IC Integrated ICFabrication IP Providers Tools, Test & Verification
3Acuity Advisors | Semiconductor Industry Market Review | Jan 2018Acuity Advisors | Semiconductor Industry Market Review | December 2018 3
Global M&A Mid Market2 Deal Volumes by Geography (H2 2016-18*)
Transactions Analysis (Cont.)
Source: Capital IQ, Company Websites, Acuity IntelligenceNote: 2Comprises sub $250.0m deals, including deals with undisclosed transaction values; *includes deals announced up to 31 August 2018
▪ Asia and North America were the major centers for acquisitions in H2 2016-18* with about 85% of the total deals
being executed by acquirors in these regions.
▪ Asian companies experienced a significant amount of interest from acquirers across the globe (including other
Asian counterparts). In particular, companies based out of China and Taiwan are aggressively acquiring companies
in their home country and across Asia to gain build manufacturing capabilities and new technology.
▪ European markets witnessed steady cross-border investment with ~30% of acquisitions being carried out by North
American acquirers and ~10% being carried out by Asian acquirers.
14%86%
61%
39%
81%
4%
13%
2%
28%
59%
9%3%
6% 3%
84%
7%
24%76%
Headquarters of Semiconductor Buyers
Headquarters of North American Buyers
Headquarters of European Buyers
Headquarters of Semiconductor Targets
North America
Europe
Headquarters of Asian BuyersAsia
Acuity Market Review: Semiconductor Industry – 2018
Europe Asia OthersNorth AmericaRoW
4Acuity Advisors | Semiconductor Industry Market Review | Jan 2018Acuity Advisors | Semiconductor Industry Market Review | December 2018 4
▪ Across the sector, we believe semiconductor
companies will enjoy sustainable long term
revenue growth. This strong growth has
warranted for higher valuations over the past
years.
▪ Integrated IC Providers were acquired at higher
revenue multiples than those of other
semiconductor businesses due to their high
average revenue growth rate and EBITDA
margin of 11% and 26%, respectively.
▪ The advent of newer technologies requiring
faster computing speeds has propelled demand
for vertically integrated IC providers that are
deploying cutting-edge manufacturing
technologies at new process nodes.
▪ The rising cost of manufacturing and an ever-
evolving range of upcoming consumer demand
would continue to drive consolidation in the
industry. Companies can continue to resort to
inorganic means of growth and collaboration to
keep up with competition and achieve
economies of scale.
Semiconductors, Precedent Transactions (H2 2016–18*) –EV/Revenue Multiples
Semiconductors, Precedent Transactions (H2 2016–18*) –EV/EBITDA Multiples
0.6x 0.6x2.0x
0.5x
1.6x 1.3x
3.2x
1.6x
Fabless IC Fabrication Integrated IC Tools, Test &Verification
3.6x4.4x
6.4x 6.4x
Median
Max
Min
Acuity Market Review: Semiconductor Industry – 2018
Valuation Analysis
6.2x 5.6x8.4x
15.3x
8.8x
13.6x
Fabless IC Fabrication Tools, Test &Verification
11.2x
22.6x
19.6x
Median
Max
Min
Source: Capital IQ, Acuity Intelligence; Note: *includes deals announced up to 31 August 2018
▪ We know semiconductors – that’s why we’re the
trusted M&A advisors for the industry. We are the
most active and successful European Mid-Market
Investment Bank for the semiconductor market
having completed more deals than any other firm.
▪ We are skilled at getting to the heart of a technology
business, understanding what will attract buyers, and
building long-lasting relationships. We have an
extensive network through the entire semiconductor
industry.
About Acuity Advisors
▪ We have an unrivalled understanding of the
industry’s complexities and personalities – our track
record and client feedback are compelling evidence
of that.
▪ We’re an international firm – most of our deals are
cross-border, from offices in London, Munich,
Shanghai and Silicon Valley – but we’re grounded in
our approach. We move quickly when it’s needed,
and we’re around for the long haul when patience is
a virtue.
24 People4 Offices 7 Semi Transactions
CY16/CY17
10 Year Track
Record Type: Business Sale
Acquired by
Type: Business Sale
Acquired by
Type: Business Sale
Acquired by
Type: Divestment
Acquired by
5Acuity Advisors | Semiconductor Industry Market Review | Jan 2018
This document has been produced by Acuity Advisors LLP and is furnished to you solely for your information
and may not be reproduced or redistributed, in whole or in part, to any other person.
No representation or warranty (expressed or implied) is made as to, and no reliance should be placed on, the fairness,
accuracy or completeness of the information contained herein and, accordingly, none of Acuity Advisors LLP‘s officers
or employees accepts any liability whatsoever arising directly or indirectly from the use of this document.
LONDON33 Cavendish SquareLondonW1G 0PWUnited Kingdom
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+44 (0)20 7123 4889 hello@acuity.co.uk
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