In 2006, a group of private equity investors -- including KKR and Bain Capital -- agreed to pay $11.1 billion for an 80.1% stake in NXP, a semiconductor firm that was a part of Royal Philips Electronics (PHG).
Unfortunately, the deal came at the height of the buyout bubble. Within a few years, there was talk that NXP would file for bankruptcy because of the semiconductor business' steep fall and the enormous debt load.
But things can change quickly in the private equity world. NXP has now filed for an initial public offering, which is expected to raise as much as $1.15 billion. The underwriters include Credit Suisse (CS), Goldman Sachs (GS) and Morgan Stanley (MS).
The Semi Rebound
For over 50 years, NXP has been a leading developer of semiconductors, with a focus on high-performance mixed-signal and standard products. The customer base spans categories like automotive, wireless infrastructure, industrial and computing.
NXP has more than 2,600 engineers, with an average of 14 years of experience. The company also spends roughly $600 million per year on research and development, which helps provide an edge in the highly competitive semiconductor industry. In all, NXP has 14,000 patents, according to its IPO filing.
To focus on higher margin businesses and lower costs, NXP has instituted its Redesign Program. This has involved bringing in a new team of executives, focusing on high-end products with premium pricing and implementing lean manufacturing principles. At the same time, NXP has exited a variety of low-margin businesses, such as for cordless phones and set-top boxes.
With the Redesign Program, NXP expects to achieve over $650 million in annual savings by 2011.
At the start of this year, the IPO market was definitely chilly. The Blackstone Group (BX) had to cancel its $1.78 billion offering of Travelport and postpone its deal for Merlin Entertainments. There was also trouble finding buyers for the IPO of Graham Packaging (GRM).
And look at Apollo Management. Last week the firm saw its offering of USA Metals (MUSA) fall 6.5%.
Despite all this, NXP's prospects still look promising. The semiconductor sector is definitely gaining traction, with M&A activity picking up recently. What's more, NXP is likely to get a nice boost from its Redesign Program and realize strong top-line gains as the economy returns to growth -- which should make things rosy for IPO investors.
Introduction to Value Investing
Are you the next Warren Buffett?View Course »