Renesas’s $6.7 Billion Acquisition of IDT

By Jack Briody and Tristan Yang of Columbia University, Dexter Wan (Wharton School) - Date: 24/04/2019

Overview of the deal

  • Acquirer: Renesas - Advisors: Morgan Stanley, Bank of America, and Mizuho Securities

  • Target: IDT - Advisor: J.P. Morgan

  • Estimated value: $6.7bn - Announcement date: September 2018

Renesas Electronics Corporation, the second-biggest supplier of automotive semiconductors by market share, is acquiring Integrated Device Technology, Inc. for $6.7 billion in order to expand its product line. Renesas is specifically looking to explore applications beyond the automotive sector, which currently fuels half its revenue, into data centers and communications devices.

Renesas has the ability to pay for the acquisition with cash on-hand and bank loans and has no plans for equity fundraising. Renesas will pay $49 per share in cash for IDT’s outstanding shares, a 29.5% premium over IDT’s stock price as of late August. Final regulatory approval was given to Renesas in late March, and the deal was closed.

The bulk of the strategic rationale for the deal is Renesas’s desire for IDT’s expertise in analog semiconductors for wireless networks and sensors, a niche knowledge base that plays a crucial role in autonomous driving and connected car technology. Though Renesas has been working on similar products, the company has been unable to develop sensor-based analog chips comparable to IDT’s.

“The combination of Integrated Device Technology’s analog mixed-signal leadership with Renesas’ world-leading microcontroller and automotive/industrial franchise creates a new global powerhouse” - Gregory Waters, CEO of IDT

Company Details (Renesas)

Renesas researches, designs, and manufactures semiconductors, particularly for applications in the automotive, healthcare, energy management, and automation spaces.

- Founded in 2002, headquartered in Tokyo

- President and CEO: Bunsei Kure

- Number of employees: 19,546

- Market Cap: $9.28bn - EV: $9.40bn

- LTM Revenue: $6.90bn - LTM EBITDA: $1.74bn

- LTM EV/Revenue: 1.36x - LTM EV/EBITDA: 5.40x

Company Details (IDT)

IDT is a California-based semiconductor designer, manufacturer, and distributor that operates in the Communications and Computing, Consumer, and Industrial segments.

- Founded in 1980, headquartered in San Jose, CA

- President and CEO: Gregory Waters

- Number of employees: 1,821

- Market Cap: $6.33bn - EV: $6.46bn

- LTM Revenue: $929mm - LTM EBITDA: $237mm

- LTM EV/Revenue: 6.95x - LTM EV/EBITDA: 27.26x

Projections and Assumptions

Short term consequences

Renesas is second only to NXP Semiconductors in auto-related chips, commanding 30% of the global market for microcontrollers used in cars. However, its weakness lies in analog chips which process signals from sound, light or temperature into digital data. By acquiring IDT, Renesas is able to gain access to IDT’s know-how in analog semiconductors for wireless networks and sensors, which is central to the development of autonomous vehicle technologies.

Even though the deal was announced fall 2018, Renesas and IDT have already worked together to develop “Winning Combinations” in the areas of Automotives, Industrial IoT, and Infrastructure. Reports from February state that Renesas plans to lay off as many as 1000 workers in Tokyo; however, these “Winning Combinations” may give Renesas-IDT the ability to avoid heavy job cuts by continuing to dominate in a shrinking industry.