Chipmaker Renesas Targeting Industrial, Health-Care Acquisitions
(Bloomberg) -- Renesas Electronics Corp., the world’s second-biggest supplier of semiconductors used in cars, is planning acquisitions to expand outside of the automotive industry.
The pool of possible candidates includes about five or six overseas companies in aerospace, health care, industrial and general-purpose applications, Renesas Chief Financial Officer Hidetoshi Shibata said in an interview. Companies offering analog and mixed signal engineering talent and expertise are especially attractive, Shibata said.
Renesas, second only to NXP Semiconductors NV in automotive market share, already gets more than half of its revenue from auto-sector customers. Last year, the Japanese company paid $3.2 billion for Intersil Corp., a U.S. chipmaker whose product lineup includes semiconductors that manage battery voltage in hybrid and electric vehicles. Having digested that acquisition, Renesas is ready to shop again, this time for companies with less exposure to the car industry, Shibata said.
“Aerospace is a good example, because of long product cycles, high quality and reliability requirements, and constant demand for innovation,” he said. “We can play to our strengths.”
While Intersil helped boost Renesas’s profit by about $170 million, just a quarter of that came from cost reductions, Shibata said. The next purchase, which is likely to be in the U.S., will focus more squarely at cutting overlapping legal, administrative and information-systems expenses, he said, declining to identify specific companies. Renesas in January denied a report that it’s in talks to buy Maxim Integrated Products Inc.
“Rather than being a single acquisition, Intersil does seem like a more fundamental shift toward a more globalized mindset,” said Damian Thong, a Tokyo-based analyst at Macquarie Group Ltd. “Having people outside Japan will give them better contacts and better insight into future M&A.”
Mergers and acquisitions between chip industry players have accelerated with about $145 billion worth of deals announced this year, already 9 percent more than all of 2017, according to data compiled by Bloomberg. Concerns over U.S.-China trade tensions and potential exports restrictions might dampen activity and potentially result in cheaper valuations, Thong said. The Philadelphia Semiconductor Index of 30 stocks is down about 8 percent from a record in March.
“There has already been quite a bit of consolidation,” said Masahiro Wakasugi, an analyst with Bloomberg Intelligence. “One danger is buying high. And right now it feels like semiconductor valuations could come down a bit more.”
While money isn’t an issue for Renesas, given its access to bank financing in Japan, the scope of possible deals is limited by the company’s ability to absorb the target. Headcount is one important metric, Shibata said. Renesas, which itself was formed in 2010 through the merger of NEC Corp.’s chip unit and a money-losing venture between Hitachi Ltd. and Mitsubishi Electric Corp., has about 20,000 workers. Intersil had little more than 1,000 employees and Maxim has 7,000.
“Unless the assets are digestible, it can be a real struggle to properly integrate them,” Shibata said. “We don’t intend to buy something and just let it hang out.”
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