The Truth About Semiconductor Services Company Acquisition Prices

No one knew or forecasted that the market for semiconductor design engineering talent worldwide would get red hot and stay that way for the past few years. There are multiple reasons why this is happening of course and my goal is to not delve into that.

Most experienced people that have been a part of the ups and downs of the previous semiconductor cycles believed that the current situation would ease out in a few quarters. That assumption has not born fruit. As a result, large semiconductor services providers started looking at acquiring smaller players to add optionality to their operations - growing headcount and expanding their footprint across multiple geographies became the new corporate strategy. 

Let's look at the deals over the past few years:


A note to my non-Indian readers - I have used Crores as a unit of money prevalent in India. A Crore is equivalent to 10 Million. If you are looking to convert this into US $, you should multiply the number in Crores by 10 and then divide by the exchange rate on the day of the deal to get a figure in $Mn.

Some of these are fantastic numbers. For example, SmartPlay Technologies getting acquired for 1100 Crores with a revenue of 347 Crores, or 3x multiple is like a dream come true. Both Eximius and Cerium seem to have gotten acquired for 2x revenue. But something stinks here. Announced prices are a mirage.

Houston, we have a problem and the truth is hidden in a galaxy far far away. It's pretty clear that nobody is getting a valuation of more than 1.2x revenue, most are close to 1 or 1.1. Many don't even get paid the whole amount - it's distributed over three to four years and often linked to financial performance. The management teams of acquired companies have to stay with the new company for three/four years and deliver numbers if they hope to get more money. Most people don't stick around for more than two years - the system is designed in such a way. Some deals are truly terrible - the acquiring company just agrees to take over the salaries of the employees and pays the founders a small compensation for acquiring that right.

How do I know this? First, often look at the fine print which, most companies don't even disclose. Second, talk to industry veterans who have seen multiple deals up close. 

Let's take a look at the same table again, but with two more columns where I speculate as to the real price of acquisition:


Don't believe me? I am happy to discuss if you know something that I have missed. Connect with me here.



Comments

  1. TheUnitedIndianNovember 16, 2023 at 2:02 AM

    A well-written and informative blog post that highlights the promising Future Of Semiconductor Industry In India. The author's ability to convey complex information in a simple and engaging manner is commendable

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