Microsemi Corp.’s latest acquisition highlights how far the company has come in a diversification effort that has taken the Aliso Viejo-based chipmaker from an aerospace and defense specialist to innovator in several fields, with a new toehold on the industrial side of the budding Internet of Things market.
Microsemi set out to diversify about seven years ago and has rolled up 17 companies since then, adding to its portfolio products and expertise in timing and synchronization, weapons and contraband screening systems, power supply, and Ethernet and broadband infrastructure, among others areas.
“We’ve really transitioned into much more complex technologies,” said Chief Strategy Officer Steve Litchfield.
The diversification trend continued with last week’s $389 million deal for Camarillo-based Vitesse Semiconductor Corp., which specializes in high performance chips, application software, and integrated turnkey systems for global telecom carriers, enterprise and Internet of Things networks.
The IoT segment is pegged for explosive growth in coming years, fueled primarily by consumer applications such as connected cars, wearables, and smart thermostats and plugs.
Industrial Market
The technology allows users to communicate with devices remotely, such as using a smartphone to turn on the lights at home before arriving there. It also has application in the industrial sector, where the Vitesse buy gives Microsemi the potential to offer new products for factory automation and machine-to-machine communication to a roster of big customers that includes the likes of Rockwell, Honeywell and Siemens.
“It’s a new market that’s emerging globally right now,” Litchfield said.
The industrial market was taking on increasing importance for Microsemi well before the Vitesse deal, accounting for about 22% of the company’s $1.1 billion in revenue in the 12 months through September, the end of its fiscal year. It is pegged to get a bump with Vitesse under the fold as Ethernet connectivity—a key element in machine-to-machine communication—gains prominence in the manufacturing sector.
“Fitesse is uniquely positioned to take advantage of that,” Litchfield said. “Industrial guys just don’t have that expertise.”
Vitesse had been generating about 10% of its $108 million in annual revenue from the connectivity segment.
Microsemi plans to offer its newly acquired Ethernet technology to its existing chip customers in the global telecom and networking equipment markets, including Juniper, Cisco, ZTE and Huawai, among others.
“That’s where we have the overlap,” Litchfield said of the Vitesse technology and the company’s client roster in the two segments.
Microsemi’s chip business is much broader, too, with a wide range of military, consumer, industrial and aerospace uses, including exploratory missions to Mars. The company’s chips are built into satellites, drones, digital televisions, defibrillators, pacemakers and other devices made by the likes of Boeing, Hewlett-Packard, Dell and Samsung Electronics.
Microsemi projects the Vitesse buy will add between $15.2 million and $19 million to its bottom line in its first fiscal year after the deal closes, expected by late June.
Pricey
The transaction, which has been approved by both company boards, is Microsemi’s third priciest in its 55-year history.
Microsemi in 2010 acquired Mountain View-based Actel Corp. for $430 million, adding to its specialization of “high-reliability” chips built into devices that are costly if they fail. The technology was crucial in the launch and flight of the Curiosity rover to Mars.
Chief Executive Jim Peterson’s crowning achievement at the helm might have come a year later, when Microsemi closed the $633 million purchase of Canada-based chipmaker Zarlink Semiconductor Inc. in a rare hostile takeover in the technology sector.
The company was interested in Zarlink for its inroads in the communications and medical markets—key segments of Microsemi’s growth plan at the time. The deal helped the chipmaker pave a clear path to reaching its goal of $1 billion in annual revenue.
Microsemi’s deal for Vitesse represents a 32% premium based on the average closing price of Vitesse’s shares during a 30 trading- day period ending March 17.
Microsemi also has received approval from Vitesse stockholders who control about 22% of the company’s outstanding common shares.
The deals give Vitesse a “go shop” period of 21 calendar days through April 7 to solicit other bids. Microsemi has the right to match a higher bid and is eligible for certain breakup fees if the deal is terminated under certain circumstances.
Vitesse, Microsemi Shares
Vitesse shares skyrocketed 37% when the deal was announced on March 18, reaching a market value of about $367.6 million before falling back slightly.
Microsemi shares rose modestly last week to a market cap of about $3.2 billion.
Some analysts speculated late last week that Irvine-based chipmaker Broadcom Corp. or Marvell Technology Group in Santa Clara could make competing bids for Vitesse.
