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Renesas’s $5.8bn Acquisition of Altium

By Adam Bernabeu, Malo Inizan and Mahaut Bonnet de Roovere (HEC Paris)

Kush Mahawar, Alina Vendina and Helena Bhattacharya (Oxford University)


Photo: Vishnum Mohanan (Unsplash)

 

Overview of the deal


Acquirer: Renesas Electronics Corporation

Target: Altium Limited

Total transaction size: $5.8bn

Closed date: H2 2024

Acquirer advisors: Deutsche Securities Inc. (Financial), Covington & Burling LLP, DLA Piper Australia Pty Ltd, Nagashima Ohno & Tsunematsu (Legal)

Target advisors: J.P. Morgan Securities LLC (Financial), King & Wood Mallesons, Reed Smith LLP (Legal)


On February 14, the Japanese semiconductor company Renesas announced its intention to acquire the Australian PCB design software firm, Altium, for $5.8 billion in cash. The collaboration between these two companies aims to create an open electronics systems design and management platform. This acquisition is particularly significant as it represents Renesas’ fourth-largest deal since 2017 and one of the largest takeovers of an Australian tech company.


Japanese companies are increasingly exploring opportunities overseas due to a shrinking domestic economy, compounded by challenges in supply chains and geopolitical tensions with China. Consequently, the leading chipmaker for the Japanese automotive industry seeks to diversify its business and expand into data centers and consumer device products. This move marks Renesas' first step into user experience and innovation at the system level for electronics system designers, as it integrates Altium’s cloud platform capabilities with Renesas’ portfolio of high-performance solutions. With this acquisition, Renesas wants to become a global leader in embedded semiconductor solutions.


“There is a greater pressure to shorten the time to market” Hidetoshi Shibata, CEO  (Renesas)


Company Details (Acquirer - Renesas)


Renesas Electronics Corporation is a Japanese public tech company specialized in the manufacturing, development, and sale of semiconductor products internationally. It was incorporated in 2002 as the consolidated entity of Hitachi and Mitsubishi semiconductor units and was the world’s largest microcontroller supplier and the third largest automotive semiconductor company as of 2022. The company operates through Automotive Business and Industrial/Infrastructure/Internet of Things (IoT) Business segments. They mainly provide microcontrollers, semiconductors, and clocks (electronic devices used to initiate and synthesize internal operations) in all its business segments. Renesas Electronic Corporation is listed on the Tokyo Stock Exchange.


Founded in 2002

Headquartered in : Tokyo, Japan

CEO : Hidetoshi Shibata (2019 –)

TEV and Market cap as of Mar-01-2024, LTM as of Dec-31-2023

Number of employees : 21,252

Market Cap: $30.6bn

EV : $32.18bn

LTM Revenue: $9.79bn

LTM EBITDA:: $3.71bn

LTM EV/Revenue: 3.3x

LTM EV/EBITDA : 8.7x

Recent acquisitions : Transphorm Inc (11 Jan 2024) for $322.61mm, Sequans Communications SA for $249.00mm (07 Aug 2023



Company Details (Target - Altium)


Altium Limited is an American-Australian multinational software company which develops and sells computer software for the design of next generation electronic products internationally. The firm was first founded in 1985 as one of the world’s first printed circuit board (PCB) design tool providers. Its flagship product Altium Designer is a software for unified electronic design but it also provides a solution for library management and a search engine for electronic parts. Customers that rely on Altium to accelerate their innovation cycles include Siemens, Philips, Lenovo, Bosch and Amazon. The company went public on the Australian Securities Exchange in 1999, changing its name from Protel Systems to Altium in 2001.

 

Founded in 1985

Headquartered in:  San Diego, California; United States

CEO : Aram MirkazemiTEV and Market cap as of Mar-01-2024, LTM as of Dec-31-2023. The following figures are denominated in USD. 

Number of employees : 791

Market Cap : $5.6bn (as of 1/3/2024)

EV : $5.44bn

LTM Revenue : $270.68 mn

LTM EBITDA : $93,37 mn

LTM EV/Revenue : x20.10

LTM EV/EBITDA : x58.26


Projections and Assumptions


Short-term consequences


The announcement of the news led to a fall of Renesas’ share price by 4,9% before recovering slightly afterwards. The lack of enthusiasm of Renesas’ investors is indicative of doubts about the company’s long-term growth. On the contrary, there is large support from the Altium board with a premium of approximately 34% to the closing price of Altium common stock on the day of the announcement.   This is 31% above its all-time high and raises questions about the price even though the transaction is expected to impact earnings from revenue and cost synergies of Renesas after it integrates Altium since the latter represents an addition of US$263 million in revenue with 36.5% EBITDA margin (fiscal year ended on June 30, 2023). The deal also implies the exit of Altium from the limited-tech-oriented Australian Securities Exchange.


Long-term Upsides


In addition to an expectation that the acquisition will materialize long-term revenue and cost synergies, Renesas is likely to benefit strategically. The firm has been pushed to both diversify and add scale following supply chain disruptions and geopolitical tensions.  China accounted for more revenue than Europe and North America combined in 2022 and so Altium, with significant scale outside Asia, offers geographical and revenue resilience. A growing list of large acquisitions (with Altium being the second this month), shows a clear intent from Renesas to strengthen its position for future growth. Successful acquisitions of Intersil in 2016 ($3.2bn) and Integrated Device Technology in 2019 ($6.7bn) demonstrate the credentials of the Renesas management team. 

 

Product-wise, the acquisition is expected to enable two industry leaders to together establish an integrated and open electronics system design and lifecycle management platform. Altium’s electronics product design platform is likely to strengthen Renesas’ digitalisation strategy, accelerating innovation and offering long-term security and value to shareholders in what is a rapidly evolving market. Renesas has faced strong competition in the global semiconductor industry; the acquisition of Altium appears to offer a valuable addition to its product range aiming to combine Altium’s cloud management with Renesas’ portfolio of embedded systems to result in an integrated high-performance system design compatible with third-party vendors.

 

With strong operational synergies, strategic diversification opportunities and market growth potential, the acquisition of Altium by Renesas appears to be well-positioned. 


Risks and Uncertainties

 

Japan has seen major expansion into overseas technology markets in 2023 with Renesas following that trend through consistent large investments in establishing a dominant market position in semiconductor manufacture, with a notable recent acquisition of Panthronics in end-Q3 2023 and Transphorm expected in Q4 2024. Strong targeted merger-and-acquisition activity on a short time-scale has impacted the debt to EBITDA ratio, an effect exasperated by the fact that the transaction, with a significant 34% premium, was financed through cash reserves and monetary loans as well as the expected delay in earnings in next few years, given Altium’s EBITDA is substantially lower than Renesas’. 

 

Furthermore, the acquisition was an all-cash transaction with Renesas acquiring all of the company’s outstanding shares as well as paying the enterprise value. It is known that all cash transactions involve a higher risk for the acquiring party, with Renesas having to entirely absorb the potential cost synergies and integration. However the risk is somewhat mediated by Renesas outlining the importance of maintaining Altium as an independently operating subsidiary company.

 

Whether the company will profit in the long-term from this accelerated inorganic growth remains unclear, an opinion reflected in market sentiment with Renesas share price falling by approximately 5% post-announcement. 


“Development processes continue to evolve and accelerate. With our Purpose “To Make Our Lives Easier” in mind, our vision is to make electronics design accessible to the broader market to allow more innovation through a cloud-based platform” Hidetoshi Shibata, CEO (Renesas)

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