22 November 2016

MACOM to acquire Applied Micro Circuits Corp for $770m

MACOM Technology Solutions Holdings Inc of Lowell, MA, USA (which makes semiconductors, components and subassemblies for analog RF, microwave, millimeter-wave and photonic applications) has agreed to acquire Applied Micro Circuits Corp of Santa Clara, CA, USA (which provides silicon-based computing and connectivity solutions for next-generation cloud infrastructure and data centers) for about $8.36 per share ($3.25 in cash plus 0.1089 MACOM shares per share of AppliedMicro), representing a 15.4% premium over the closing price of $7.25 on 18 November. AppliedMicro stockholders are expected to own about 15% of the combined company on a pro forma basis.

The transaction is valued at about $770m in diluted equity value, or about $688m net of AppliedMicro's $82m cash and short-term investments as of end-September 2016. MACOM expects to pay the cash portion of the acquisition price from cash on hand.

MACOM intends to commence a tender offer to purchase each outstanding common share of AppliedMicro. It will assume certain equity awards held by AppliedMicro employees.

AppliedMicro's trailing twelve months (TTM) revenue is about $165m (including the non-strategic Compute business, which MACOM intends to divest within the first 100 days of closing). The pro forma combined TTM revenue of MACOM and AppliedMicro is hence about $709m including AppliedMicro's Compute business (or $644m excluding the Compute business). MACOM expects to improve AppliedMicro's profitability by divesting the Compute business and by delivering on substantial revenue and cost synergies.

It is reckoned that AppliedMicro's Connectivity business is highly complementary to MACOM's product portfolio, through the addition of what are claimed to be market-leading optical transport network (OTN) framers, MACsec Ethernet networking components and the industry's leading single-lambda PAM4 platform.

The acquisition is targeted at accelerating MACOM's growth in optical technologies for cloud service providers and enterprise network customers serving the high-growth, high-margin data-center market.

MACOM expects that AppliedMicro's PAM4 solutions based on FinFET technology and custom engagements with top-tier data-center and service provider customers will strengthen its competitive position with those customers.

"MACOM will now be able to provide all the requisite semiconductor content for optical networks - analog, photonic and PHY - from the switch to fiber for long haul, metro, access, backhaul and data center," notes president & CEO John Croteau. "AppliedMicro's 100G to 400G single-lambda PAM4 platform should perfectly complement MACOM's leadership in analog and photonic components for data centers," he adds.

"The IEEE recently recommended the adoption of AppliedMicro's single-lambda PAM4 solution to be an industry standard for enterprise and data-center connectivity, positioning this technology as the solution of choice going forward. Additionally, AppliedMicro's Connectivity business aligns well with MACOM's differentiated, high-growth business model, offering non-GAAP gross margins well in excess of MACOM's long-term target operating model, long product life cycles, and sticky customer relationships," he continues.

"AppliedMicro also provides value-added technologies including SerDes, high-speed analog-to-digital and digital-to-analog converters with industry-leading engineering competencies and long product lifecycles. Importantly, we expect that this transaction will establish MACOM with an incumbent position supplying strategic components and enterprise and cloud data-center customers."

"The transaction affirms the value that our employees have created and provides a strong path forward for our Connectivity business while delivering AppliedMicro stockholders a robust premium," says AppliedMicro's president & CEO Paramesh Gopi. "This transaction will create an industry powerhouse with the scale, deep customer relationships, innovative technology, and enabling products that will help deliver explosive growth in enterprise and cloud data centers," he adds. "In addition, this agreement provides a promising path forward for the Compute business, which is in the process of bringing AppliedMicro's highly competitive third-generation X-Gene processor to market," he adds.

Excluding the Compute business, the transaction is expected to be accretive to MACOM's non-GAAP gross margin, operating margin and EPS in fiscal year 2017.

The boards of directors of both firms have approved the transaction, which is subject to customary closing conditions and regulatory approvals. MACOM currently expects the transaction to close in first-quarter 2017.

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