Nvidia’s $6.9bn Acquisition of Mellanox Technologies

By Carlos Asorey, Lukas Bruell, Steven Skomra and Claire Camoin (Georgetown and University of Warwick) - Date: 31/03/2019

Overview of the deal

  • Acquirer: Nvidia Corporation

  • Target: Mellanox Technologies Ltd.

  • Estimated value: $6.9 billion

  • Announcement date: March 11, 2019

  • Acquirer Advisors: Goldman Sachs and Jones Day (legal side)

  • Target Advisors: Credit Suisse and JPMorgan Chase and Latham & Watkins and Herzog Fox & Neeman (legal side)

The US semiconductor company Nvidia won the race against its main competitor Intel to secure the acquisition of Mellanox Technologies. Mellanox’s technology is crucial in transferring information from one component to another, both within and between computers, as it makes cables and switches. Thus, the $6.9bn all-cash deal, including debt, will strengthen Nvidia’s business in data centres, which already accounts for nearly a quarter of its $11.7bn of revenues. The acquirer offered 125$ per share for Mellanox, while on the 8th March, it closed at $109.38, thus being a 14 percent price premium. But traders are not entirely convinced of the completion of the deal, with Mellanox trading up 8.6 percent to $118.62, still short of the bid from Nvidia. That gap may reflect concerns that chip deals have foundered on regulatory approval delays and blocks amid a trade dispute between China and the U.S.

“We share the same vision for accelerated computing as NVIDIA. Combining our two companies comes as a natural extension of our longstanding partnership and is a great fit given our common performance-driven cultures. This combination will foster the creation of powerful technology and fantastic opportunities for our people.” - Eyal Waldman, Founder and CEO of Mellanox

Company Details (Nvidia Corporation)

Nvidia is an American technology company that specializes in the manufacturing and distribution of graphic processing units (GPUs) and other components such as System on a Chip units (SoCs).

- Founded in 1993, headquartered in Santa Clara, CA

- President and CEO: Jensen Huang

- Number of employees: 11,528 (2018)

- Market Cap: $107.9bn -EV: $102.5bn

- LTM Revenue: $11.7bn -LTM EBITDA: $4.1bn

- LTM EV/Revenue: 14.65x -LTM EV/EBITDA: 41.76x

Company Details (Mellanox Technologies Ltd.)

Mellanox Technologies is an Israeli technology company that specializes in the manufacturing and supplying of computer networking products.

- Founded in 1999, headquartered in Sunnyvale, CA

- President and CEO: Eyal Waldman

- Number of employees: 2,900 (March 2017)

- Market Cap: $6.4bn -EV: $6.0bn

- LTM Revenue: $1.1bn -LTM EBITDA: $250.9mn

- LTM EV/Revenue: 4.17x -LTM EV/EBITDA: 21.26x

Projections and Assumptions

Short term consequences

The companies have a long history of collaboration and joint innovation, thus the deal will unite two of the world’s leading companies in high performance computing. With Mellanox, Nvidia will optimize datacenter-scale workloads across the entire computing, networking and storage stack to achieve higher performance, greater utilization and lower operating cost for customers.

Nvidia faced a turbulent 2018’s end, as its fourth quarter is down by 24% total with a massive 45% year-over-year loss in gaming revenues, driven in large part by a decline in sales of graphics cards to cryptocurrency miners. The company expects to return to growth in its core gaming business in the quarter ending in July, but has alerted limited visibility among cloud computing clients. Therefore, the deal may flag up Nvidia’s need of consolidation to gain scale while battling rising costs and shrinking customer lists.