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2019

06/11

Some Thoughts on Cross-border Mergers and Acquisitions in Semiconductor Field

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At present, the semiconductor industry is highly mature, which is actually the result of the opening and collaboration of the global industrial chain.


For domestic enterprises, mergers and acquisitions can make themselves "jump" to become a major player in the industry, and may also make themselves burdened with this sink.


Since this year, there have been three representative cases of domestic enterprises in the semiconductor field, as follows:


1. Wentai Technology Acquisition of Anshi Semiconductor


On June 5, Wentai Science and Technology announced that the merger and reorganization Audit Committee of listed companies on the Securities Regulatory Commission (SFC) had examined the issues of shares issued, cash paid for assets purchased and related party transactions (hereinafter referred to as "the major asset reorganization") and obtained conditional approval.


2. Beijing Junzheng announces its intention to acquire ISSI


On May 16, Beijing Junzheng announced that the company and/or its wholly-owned subsidiary, Hefei Junzheng, intends to purchase several entity shares by issuing shares and/or paying cash. After the completion of the transaction, the company will hold 100% of Beijing Silicon directly and indirectly.


3. Ziguangguowei's acquisition of French Linxens


On June 2, Ziguangguowei disclosed its plan for major asset restructuring transactions. It intends to invest in purple Guangshenhuang, purple Jinhaikao, purple Jinhaiyue, red maple capital and Xinbao by issuing shares to buy 100% of its total holdings of purple Guanglian Sheng (core asset Linxens). The transaction was initially priced at 18 billion yuan.


(Only cases involving domestic buyers are analyzed here. As for some major foreign cases, such as Infineon's $10 billion acquisition of Cypress and so on, just take a look! If you're lucky, you'll probably pick up a few "bits and pieces" in the future, wait and see!

The above mergers and acquisitions cases can be divided into three categories in terms of operation modes.



1. Privatization abroad before loading into A-share listed companies. The ISSI that Beijing Junzheng intends to acquire is this routine.


This model is suitable for companies with relatively focused business and clear main business, which take over more smoothly. In fact, the same is true of the Howe acquired by Well. At present, from the perspective of investment, pure privatization delisting and re-listing, the use of different capital market valuation differences to seek arbitrage investment strategy, in fact, is not feasible. Unless seriously underestimated, plus extra good luck. In addition, collaboration with leading domestic companies may be better.



Personally, I think we should return to the "original heart" of investment and think about "where is the value". Is it underestimated? Is the management team capability not released? Market potential is not fully opened? Cost savings? Wait. After retirement, it is particularly important to improve efficiency. Such as stripping inefficient assets or operating units that do not match the strategy, activating domestic market space, purchasing synergies to reduce costs, full team incentives, cultural remodeling, etc., in order to create greater value. After "fattening up", then seek the capital market IPO, or "waiting for the price to sell", good things are not worrying nobody wants ah!


Even, it can be used as a platform for industrial operation and investment. Investment holding, such as Danaher, is not a business model?



In terms of specific targets, the author also has some reserve, such as in the field of simulation, as well as in the field of power semiconductor, some of which are initially operable (this is very important).



2. Direct or indirect acquisitions by listed companies. Such as Ziguangguowei's acquisition of French Linxens


This model should be said to be the most direct, flexible transaction structure, payment methods, sometimes there is no need to bend around. It is very important for listed companies to do a good job of information disclosure.


Objectively speaking, there are not many cross-border cases suitable for direct or indirect acquisitions.



Foreign-funded big boys basically took over all the "prey" that could be "included in the bag". We can see a string of familiar names that have disappeared, such as Linear Lindlett of power management, acquired by ADI, IDT of analog mix, accepted by Reza, and Microsemi, which has a large number of high-end customers, acquired by Microchip. Of course, there are also InvenSense, which has been entangled by domestic PE, who has been "robbed" by TDK, and so on.



But if you are an insider, you can probably "clean up" some good things. America, the hinterland of semiconductor industry, can't. Let's go to Europe. Logic and other core areas are not good, let's look at the analog, power and even the low and medium-end devices with a little bit of pain. If we can't walk straight, we can try to go around a bend or even a lot of bends (it's not too hot to wear too many waistcoats) until we get things done.


Strengthen your strength and prepare for pulling the trigger.


3. Divide it and eat it, such as Wentai Technology's acquisition of En Zhipu's stripped Anshi Semiconductor


This method is easy to operate and advance, and the project amount is generally not too large, "dynamic and static" small, so the resistance is small, operability is strong, and the efficiency is relatively high. Mergers and acquisitions can complement their product lines. At present, it seems to be more suitable for Chinese investment.


After a large wave of mergers and acquisitions and integration in the past, a lot of giants and SUPERGIANTS have formed, such as Bloom, Qualcomm and Risa. With the continuous evolution of the industry and the maximization of the value of the enterprise itself, the author expects that in the process of optimizing the resource allocation of the giants, there will be some assets or business operation units in succession. It was stripped out. It is the so-called "the general trend of the world, the long-term will be combined with the long-term will be divided" ah!

For example, the recent MACOM is an example of being "divided" by two domestic listed companies. Gore intends to acquire 51% of MACOM HK, a grandson company of American MACOM, for $134.6 million. It hopes to enter the new generation of radio frequency chips and modules market through this acquisition. Another A-share company, Cambridge Technologies, also announced its intention to acquire MACOM Japan Assets for Digital Optical Modules. MACOM is also a small giant company in the United States. It has been some "gossip" and is the world's leading supplier of high-performance RF, microwave, millimeter-wave and photonic solutions. It has a large product portfolio and is not very relevant in some areas.


The author judges that there will be a lot of this way next. Big people can't eat it. In fact, the dismantled small and medium-sized high-quality business units are more realistic.


Not far from it, is there no ready-made Ampleon amperon in Jian Guang's hands?



At present, domestic enterprises are facing the global market competition pattern of semiconductor industry which is almost "solidified" and "the stronger the stronger".


If the transistor was invented in Silicon Valley in 1947, the semiconductor industry has developed for nearly 70 years. Europe and the United States (including Japan and South Korea) have experienced ups and downs, rebirth experience, has been very mature, and formed a complete industrial chain, can be said to be everything, the competition pattern is almost "solidified". In each field, there are so many big players take turns sitting down, and from time to time they also "cross-border robbery" each other, striving to become super big boys.



The CPU won't say that. For example, in the field of "old" analog IC, the revenue of the top ten companies (no domestic enterprise) in 2018 accounted for 60% of global analog IC sales. It is estimated that if we expand to the top 20 companies, the market share of domestic companies will be very small in the mainstream high-end areas. In the field of MCU, the top eight foreign manufacturers (NXP, Reza, Microcore, etc.) account for 88% of the global market share, and the head concentration effect is significant. So far, Silicon Valley basically does not invest in semiconductor VCs, that is, a group of PE in the circle are in a row.


Returning to the domestic market, Haisi, who has worked hard for 15 years, is a worthy representative of IC Design Company. Its sales in 2018 are about 5.5 billion US dollars, but is there a second Haisi in sight? Realistically, the top of the market is 3.72 billion yuan (RMB) in 2018, while TI is 15.8 billion US dollars (RMB 106 billion) and its net profit is 5.6 billion US dollars (RMB 38 billion). It is no exaggeration to say that the revenue of IC design leading companies listed in China is only a fraction of TI's. (In fact, Huiding is also facing a growing ceiling.)



In the field of equipment and materials, the same situation is basically faced. For example, micro-and medium-sized semiconductors, which are the representatives of domestic semiconductor devices, have entered the field of core etching equipment. Their revenue in 2018 is 1.639 billion yuan, but compared with Lam Research in the United States, their sales revenue in 2018 is 11 billion dollars. Foreign giants have huge competitive advantages in terms of research and development, product lines and even business models. (The author thought before that, in fact, Medium Micro is quite suitable for acquisition by Huachuang North. Everything is possible.)


How to break out of the "solidified" market competition pattern, the author believes that only by persisting in opening up and embracing market-oriented, can domestic enterprises gradually forge the competitiveness of foreign giants. Huawei is open to the outside world, so that it can absorb all kinds of resources. At the same time, Huawei has learned to "live" in the fierce market competition in the early years, iterating constantly, and finally become a great enterprise. And we can look back on the other three "friends" with a state-owned background: Julong, Tang Dynasty, and the revival of the abandoned martial arts. (The author can even predict that in 5-8 years, there will be a wave of "mixing" in the domestic semiconductor industry.)

Persist in opening up and make use of global resources



Semiconductor, which represents the most advanced level of Industrial Science and technology, is the result of global industrial chain cooperation. Especially as a latecomer, it is necessary to integrate into the global industrial chain with an open attitude. Even if the United States is not open at this point, we must be open ourselves. What about Europe without America? Japan and Korea are not monolithic either!


It should be said that domestic enterprises are facing international competition from their birth. In order to win in the fierce competition surrounded by giants, they must have an open mind. Opening up is better than closing the door for "independent innovation".



Among them, merger and acquisition is an important way to rapidly enhance the competitiveness.



Real giants, without exception, are constantly developing and growing through vertical or horizontal integration of the industrial chain with the help of mergers and acquisitions, under the clear strategic traction.


Huawei can build its R&D laboratory in a remote county in Europe, essentially integrating the research capabilities of top scientists. This is no different from sometimes acquiring a company to acquire the team's leading R&D capabilities.


(Mr. Huawei and Mr. Ren Zhengfei, in my opinion, are a miracle in the history of enterprises in China and even in the world. To be frank, we can't expect every company to become Huawei, but some of its methodologies are learnable. You can imagine that the founder/owner of a business can transfer more than 90% of its equity to the team and play happily, ha ha ha.)

The risk of M&A investment is not low, and integration is the key.


Imagine that after the acquisition of a leading foreign company, your vice presidents at the company level are all foreigners with golden hair and speaking a foreign language. The cultural differences and the difficulty of management and operation are feasible.


Strategic collaboration, technology absorption, product integration, and teamwork are all difficult problems.



Especially in terms of culture. To some extent, it's the boss and his ideas. Especially in the current situation of lack of international talent/professional managers market in China, we can not always look for SEMI VIPs.


Semiconductor cross-border M&A investment, this road has not been blocked, more need strategy.


As long as you want.