Why do chip manufacturers buy software companies?

3/9/2023 11:11:30 AM

The owners of embedded software companies have considered in detail about their acquisition by semiconductor partners. In order to better understand the current market dynamics, we reviewed the acquisitions in the semiconductor industry in the past two years, and at the same time we raised four key issues.

Which chip companies use M&A to acquire software IP?

What kind of company did they buy?

What price did their acquisition give?

What kind of acquisitions do we want to see in the future?

Chip manufacturers usually buy a software company for various reasons. Usually, their acquisition target will provide their software development tools, middleware, or media decoding that can be tied to their unique processor software development suite. Acquisition usually enables a slow-developing semiconductor company to quickly enhance its competitiveness in a new market with the acquired technology. For the sake of economic benefits, some large and efficient software companies are also their acquisition targets. Especially those acquisitions that can increase revenue complementarity. Sometimes, those selling companies will be merged as part of the acquirer's production line. Maxim's acquisition of Trinity Convergence in 2010 started from this point. TI acquired Telogy Networks in 1999 for the same purpose. In essence, large-scale acquisitions should be considered more strategically. The seller will also continue to operate the company as an independent department. Famous examples of this type include Intel's 8 billion acquisition of McAfee in 2010 and its 900 million acquisition of Wind River in 2009. Also in 2009, Cavium Networks acquired MontaVista for $54 million. It is also possible for us to acquire some software companies because of obtaining the corresponding patents. One outstanding example is that Intel bought RealNetworks for 120 million dollars this year to obtain its patent and its corresponding audio decoding. The following is an in-depth analysis of related activities.

1. Which chip companies buy software companies?

Well, obviously, most chip companies are insatiable. In the past five years, Intel has acquired 48 companies. Broadcom acquired 16 rooms. According to Capital IQ, 38 software companies have merged in the past two years. The most active software company acquirers are Intel (with 8 transactions), ARM, Imagination Technologies and Authen Tec (these three are two transactions each).

2. What price did they offer?

Except for those extreme prices. We got the price index of transactions completed in the past two years.

(1) The average transaction scale is $49 million.

(2) Average value/tax multiple of the company: 5.2 times.

(3) Average company value/tax multiple: 20 times.