Recently, there have been a substantial number of semiconductor companies acquired as the sector readies for the next wave of devices tailored towards mass scale integration into the Internet of Things (IOT).
In July, Analog Devices (ADI) announced a $14.8B deal for the analog chip maker Linear Technology (LLTC) and Softbank agreed to pay $28 billion for ARM Holdings (ARMH) representing a hefty double digit premium to sales. June saw a flurry of smaller deals such as Cavium (CAVM) for Q-logic and ASML Holding (ASML) for Hermes Microvision.
Of the few quality mid-large cap semiconductor companies still independent, we have identified Maxim Integrated (MXIM) and Xilinx (XLNX) as the best-in-class targets for acquisition. XLNX in particular is well positioned as the last remaining major FPGA player following Intel’s acquisition of Altera last Summer.
Xlinix offers a wide array of synergy for potential suitors both conventional and unconventional, allowing flexibility for growth into the IoT segment.
The potential issue for the larger cap companies with IoT aspirations when it comes to acquiring companies such as Maxim and Xlinix, is the risk of both hitting inflection points in their growth where the acquisition premiums will quickly rise.
ETFs such as iShares PHLX Semiconductor (SOXX) have recently seen a parabolic move upwards in price. So, simply stated, if these larger cap companies do not acquire the best-in-class mid cap companies now, they are likely to pay substantially higher premiums the longer they wait. Using the baseball analogy, we are basically in the 1st inning of the IoT boom – 8 more innings remain.
In June of this year, we wrote a piece on Relypsa (RLYP) stating that based upon our research the company would be acquired before the end of July, with a price target range of $26 to $32. On July 21st, Relypsa was acquired by Galencia for $32 a share.
We have had great success over time with acquisition plays due to our proprietary method of analysis. Our research has led us to believe that Maxim and Xlinix acquisitions are imminent with a price range for Maxim between $55 and $60 a share, or roughly $15 billion to $17 billion, and Xlinix’s price target between $69 and $75 a share, or roughly $18.5 billion to $20 billion. According to our sources, Xlinix has seen interest from at least 5 companies, whereas we are hearing Maxim has at least 2 companies interested.
We speculate Google, Texas Instruments, Avgo-Broadcom, Qualcomm, IBM have interest in Xlinix, and subsequently, Texas Instruments and Google have also have interest in Maxim.
We used TipRanks for part of our research, just like we did when we were researching Relypsa, to narrow down a potential price range for companies using their various tools that show us what other analysts are thinking and why.
Disclaimer: This article is intended for informational and entertainment use only, and should not be construed as professional investment advice. They are our opinions only. Trading stocks is risky — always be sure to know and understand your risk tolerance. You can incur substantial financial losses in any trade or investment. Always do your own due diligence before buying and selling any stock, and/or consult with a licensed financial adviser.