Microchip Acquires Taiwan's ISSC Technologies

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Leading semiconductor manufacturer Microchip Technology Inc. (MCHP) recently inked an agreement to acquire ISSC Technologies Corporation, a low power Bluetooth and advanced wireless solutions provider for the Internet of Things, to supplement its presence in these niche markets. The acquisition is likely to be completed by the fourth quarter of calendar-year 2014, subject to the fulfillment of mandatory closing conditions.

Taiwan-based ISSC had net sales of $69.2 million with an operating margin of 18.9% in 2013. The transaction is expected to be accretive to Microchip’s non-GAAP earnings from the very first quarter of its operation.

Under the terms of the agreement, Microchip will initiate a tender offer to acquire all the outstanding shares of ISSC for approximately $4.74 per share in cash. This equates to a total equity value of about $328.5 million and a total enterprise value of about $294.3 million, after excluding cash and investments of approximately $34.2 million.

The transaction offers ISSC the opportunity to reap the benefits of economies of scale owing to the much stronger sales and manufacturing platforms of Microchip. On the other hand, the strategic purchase complements Microchip’s initiatives in the wireless market, by leveraging ISSC’s deep domain knowledge in Bluetooth and wireless technologies to enable significant cross-selling opportunities. The transaction, therefore, is a win-win deal for both the companies.

This is the first major foreign acquisition by Microchip. The transaction is expected to be funded with Microchip’s foreign cash reserves and will not entail any additional borrowings from its line of credit.

Microchip develops and manufacturers microcontrollers, memory and analog and interface products for embedded-control systems, which are small, low-power computers designed to perform specific tasks. Striking features such as quality, performance, reliability, ease of use, pricing and diversity of products have been its forte, making it one of the well-positioned companies in the semiconductor universe.

Microchip presently has a Zacks Rank #2 (Buy). Other players in the industry that are worth considering include Advanced Semiconductor Engineering Inc. (ASX), Amkor Technology, Inc. (AMKR) and MaxLinear, Inc. (MXL), each carrying a Zacks Rank #2 (Buy).

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