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Microchip (MCHP) Completes Microsemi Acquisition for $10.3B

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Microchip Technology Inc. (MCHP - Free Report) recently completed the acquisition of Microsemi Corporation for $10.3 billion. The deal worth $10.15 billion in total enterprise value was announced on Mar 1, 2018.

Approximately 99.5% of Microsemi’s votes cast were in favor of the merger in a meeting.

Per the deal, Microchip will pay $68.78 per share in cash to Microsemi shareholders, representing a total equity value of almost $8.35 billion. Moreover, the deal is expected to be immediately accretive for Microchip’s earnings on a non-GAAP basis.

The company anticipates synergies from the Microsemi buyout to be around $300 million in the third year post closure of this transaction. The acquisition transaction was financed by Microchip in cash from the balance sheets of the combined company, Microchip’s borrowings, new term loan of $3 billion and newly issued secured bonds worth $2 billion.

Notably, Microchip shares have returned 8.4% on a year-to-date basis, outperforming the industry’s rally of 7.7%.

Microchip’s Gain From the Acquisition

Microsemi’s strong focus on innovation and continued investment on research & development has been the primary driver behind its expanding product portfolio. Moreover, Microsemi has been benefiting from strong demand for its products in data centers and aerospace & defense market.

The company has been witnessing robust performance in its end markets over the past few quarters. Growth in broadband gateway end markets has contributed positively to its communications segment in the last quarter.

Further, strong satellite and space applications led to robust results in aerospace & defense market. Further, improving conditions in data centers have contributed well to top-line growth.

Microchip’s interest in Microsemi can primarily be attributed to the aforesaid growth drivers. Apart from a robust portfolio, the acquisition will expand Microchip’s total addressable markets. Strong demand for Microsemi’s solutions in Data Center, Communications, Defense & Aerospace markets bodes well for Microchip in the long haul.

Bottom Line

Acquisitions like SMSC, ISSC, Micrel and Atmel have also expanded Microchip’s product portfolio and continue to aid top-line growth. Collaboration with Amazon Web services (“AWS”) to support AWS offerings as well as develop secure cloud systems augurs well for the company.

Microchip continues to capitalize on enhancing its solution range and improving capacity constraints along with design wins. This enables it to have a competitive edge in the semiconductor industry.

Zacks Rank & Stocks to Consider

Microchip carries a Zacks Rank #3 (Hold).

Few better-ranked stocks in the broader technology sector include NVIDIA Corporation (NVDA - Free Report) , Texas Instruments Incorporated (TXN - Free Report) and Groupon, Inc. (GRPN - Free Report) , all sporting a Zacks Rank #1 (Strong Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

NVIDIA, Texas Instruments and Groupon have a long-term expected EPS growth rate of 10.3%, 9.6% and 6.5%, respectively.

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