Irvine-based chipmaker Microsemi Corp., a perennial acquirer, sees better buying conditions these days.
The maker of chips for military, aerospace and industrial uses is back to buying after a brief pause. It has bought two companies in recent weeks in a bid to gain technologies that have defense and everyday uses.
The deals follow another in the spring and two since 2008 for Microsemi.
The reason for the accelerated buying: Better prices for companies, according to Steve Litchfield, executive vice president and chief strategy officer, who heads acquisitions at Microsemi.
“Valuations have come down,” he said. “We are back to a normal time in the industry where multiples aren’t crazy low or crazy high. You may see a lot of activity on the mergers and acquisitions front ahead.”
Microsemi makes chips that go into a variety of devices, including laptops, satellites, weapons, flat-screen televisions and X-ray body scanners.
Earlier this month, it bought Bethesda, Md.-based Arxan Defense Systems Inc. and Atlanta-based VT Silicon Inc.—both small chipmakers—for undisclosed terms.
Arxan makes chips for the military that prevent tampering, piracy and reverse engineering. They’re built into weapons systems along with special software.
VT Silicon designs and makes power amplifier chips for cell phones and other mobile devices that run on the latest wireless networks.
In April, Microsemi paid $100 million for Phoenix-based White Electronic Designs Corp., which designs, assembles and tests anti-tampering chips used primarily by the military.
Last year it bought Irvine-based startup Nexsem Inc., a maker of chips that manage power in consumer electronics, for undisclosed terms.
In 2008, the company paid $20 million for La Mirada-based Babcock Inc., a maker of power controllers and sensors for the military.
Valuations
This year, valuations “have fluctuated quite a bit,” Litchfield said, making attractive deals harder to come by.
The first and second quarters were marked by renewed optimism for growth in the technology sector and some positive signs for economic recovery.
The good vibes translated into higher valuations for companies looking to sell, and higher prices in chip deals.
A local example came in April when Irvine-based Teridian Semiconductor Corp., a maker of chips for energy meters, sold for a whopping $315 million.
Sunnyvale’s Maxim Integrated Products Inc. picked up Teridian in a deal that made a spectacular exit for Teridian’s investors. They got back nearly 20 times what they paid five years earlier.
“We saw valuations increase dramatically in the spring, as indicated by the Teridian acquisition,” Litchfield said. “Deals were higher in the spring when everyone was feeling a whole lot better.”
Prices seem to have moderated somewhat with a pause in the recovery at the end of the second quarter.
“Now we have seen things back off in the public markets especially,” Litchfield said.
Microsemi has “a pretty healthy appetite” for deals, he said.
Company executives have told investors that some 30% to 40% of Microsemi’s revenue comes by way of acquisitions.
Microsemi is the third-biggest chipmaker here by local workers. It sees some $500 million in yearly sales and had a recent market value of about $1 billion.
The company’s acquisition targets fit a fairly consistent profile.
“Typically, they are already somewhat established, developing the next generation of leading technology,” Litchfield said. “There is an established team and revenue base, and most often there is profitability.”
The two most recent deals strayed a bit from the norm. They were smaller companies with unique technologies that are seen giving Microsemi an edge in different markets.
“What the company has been good at is technology differentiation,” said Russell Garcia, vice president of sales and marketing for Microsemi. “We are not doing run-of-the-mill stuff. It keeps the value proposition going for our customers.”
The Arxan buy gives Microsemi a new source of revenue with the Department of Defense, which is investing in anti-tampering technologies to prevent the reverse engineering of weapons deployed abroad.
“This is something that the DOD sees as having huge value over the next several years,” Garcia said.
The VT Silicon deal stands to make Microsemi a bigger player in fourth-generation wireless networks, such as WiMax.
VT Silicon figured out a cheaper way to make what’s called front-end chips, which manage the radio frequency portion of a device linked to a wireless network.
“What this does is gives us a more advanced technology, drives down cost and drives up performance,” Garcia said. “The 4G piece can mean everything from DOD and military applications to commercial applications on the wireless infrastructure side.”
Microsemi continues to eye the market for buys.
“We always have a pipeline of opportunities and guys we are talking to,” Litchfield said. “We like to come through with more acquisitions when things are slow so we have all the capabilities when people are back on their heels.”
