Chipmaker Microsemi Juices Its Lineup With a $430 Million Deal for Actel

With bulging cash positions, large semiconductor companies are getting aggressive with acquisitions. Even Oracle's (ORCL) Larry Ellison has said he wants get into the action.

The latest big deal came today: Microsemi (MSCC), which develops analog mixed-signal semiconductors, has agreed to pay $430 million for Actel (ACTL). The transaction comes to $20.88 per share and is all-cash.

Actually, Microsemi has been busy on the M&A front. Back in late March, the company shelled out $100 million for White Electronic Designs in another all-cash deal.

Suited to the Final Frontier


Founded in the mid-1980s, Actel has built a solid business in a technology called field programmable gate arrays (FPGAs). These are integrated circuits that are modified for specific uses by the customer after they're manufactured.

While FPGAs have been around for a while, Actel has some unique abilities. For example, its chips require low power and can withstand extreme environments, such as radiation. As a result, Actel has been able to make inroads with satellite and space applications.

The upshot is that Actel has posted consistent financial results, with 81 consecutive quarters of positive pro forma net income. Also, it has roughly 3,500 customers.

"Perfect" Deal?

The strength should continue. The FPGA market is forecasted to grow 12.6% annually from 2009 to 2014. This compares to a growth rate of 7% for the overall semiconductor market.

On the conference call, Microsemi referred to its Actel deal as "perfect." True, executives like to pump things up, but there's reason for optimism.

Actel broadens Microsemi's product line and moves it up the value chain, which means higher margins. Besides, Microsemi has a nice opportunity to leverage its distribution footprint. For example, the deal is expected to be accretive to earnings by 22 cents to 28 cents per share in the first full calendar year ending December 2011. That's certainly a big deal. And with the upturn in the semiconductor market, the results may be even better.

So it should be no surprise that Microsemi's shares are up around 6% in today's trading. In fact, the company was able to snag a $375 million seven-year term loan and a $50 million credit facility to finance the deal. In light of the extremely low interest rates these days, the deal's costs are likely be extremely low.

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