Marvell Technology’s $10bn Acquisition of Inphi Corporation
Deal overview
• Announcement date: 29th October 2020
• Industry: Technology, Semiconductor
• Deal structure: Cash and stock; $66 per share in cash and 2.323 shares of Marvell for each Inphi share.
• Deal value: $10bn
• Acquirer advisors: J.P. Morgan Securities LLC & Hogan Lovells US LLP • Target advisors: Qatalyst Partners LP & Pillsbury Winthrop Shaw Pittman LLP
On April 20, Marvell Technology officially completed the acquisition of Inphi Corporations, after the deal received approval from the Chinese governemnt earlier in March. Marvell Technology will acquire 83% of Inphi Corporation with the deal estimated to be worth over $10 billion, valuing the company at $153.83 a share. Valuation suggests a 42% premium on Inphi’s closing price on the announcement. The combined entity has decided to reorganise its domicile from Bermuda to United states.
Company Details: Marvell Technology (MRVL):
• Founded: 1995
• Headquarters: California (operational); Bermuda (legal domicile)
• Market cap: 32.83 billion
• EV: 31.06 billion
• EBITDA: 616.78 million
• EV/EBITDA: 50.36
Marvell Technology is an American company, which develops, designs and sells semiconductors and storage products. Additionally, it offers varied ethernet solutions, including network adapters, controllers, physical transceivers, switches, printer System-on Chip (SoC) products and application processors. It has operations in United States, China, Thailand, Singapore, Malaysia, Philippines, Israel, India, Japan, South Korea, Taiwan, and Vietnam. It should be noted that Marvell technology partnered with Samsung Electronics to develop a new SoC that supports 4G and 5G networks, while reducing the power consumption by 70%.
Company Details: Inphi Corporation (IPHI)
• Founded: 2000
• Headquarters: California
• Market cap: 9.25 billion
• EV: 9.58 billion
• EBITDA: 115.12 million
• EV/EBITDA: 83.17
Inphi Corporation is an American company, which provides high speed analog and mixed signal semiconductor solutions for the computing and communication markets in United States, Thailand and China. The semiconductors perform range of functions, such as, encoding, amplifying, encoding, multiplexing, demultiplexing, and retiming signals up to 400 Gbps. According to Bloomberg supply chain analysis, Microsoft Corporation and Cisco Systems Inc are some of Inphi’s largest clientele.
Strategic Rationale
The vertical integration between Marvell and Inphi allows for cost reduction, revenue enhancement and growth in customer base. Marvell is a leader in infrastructure semiconductor products, while Inphi produces high-speed data movement systems. Marvell’s press release on announcement stated, “Combining Marvell’s storage, networking, processor, and security portfolio with Inphi’s leading electro-optics interconnect platform, will position the combined company for end-to-end technology leadership in data infrastructure”. Inphi’s products are used by data dependent companies like Facebook, Amazon and Google. The deal will expand Marvell’s leadership in data centers, increase scale and provide them with accelerated access to advanced technologies to extend their 5G network infrastructure. Marvell stated that the deal will generate cost savings worth $125 million within the next 18 months and the company’s non-GAAP earnings is expected to expand by the end of the year.
Managerial synergy:
Following the deal, the organizational structure of Inphi has changed to accommodate the acquisition. Dr. Ford Tamer, CEO of Inphi Corporation has joined the board of directors effective immediately. During Dr. Ford Tamer’s period of service, Inphi became the trusted market leader for electro-optics solutions for cloud and telecom operators, increasing revenue more than 20 times in 9 years, amounting to annual run rate of about $750 million.
Leverage Buyout:
In order to stimulate the economy, the US Federal Reserve have continued to maintain low borrowing costs over the past couple of months. Borrowing from banks and corporate bonds have seen a huge surge in demands as U.S treasuries offer record low interest rates.
Recently, Marvell issued senior notes worth $2 billion to fund the Inphi acquisition. The company intends to issue the offering with three maturities, carrying different interest rates. The first offering worth $500 million has maturity in 2026, with an annualized interest rate of 1.65%. The Second offering worth $750 million has maturity in 2028, with an annual interest rate of 2.45%. Whilst the Final offering worth $750 million has maturity in 2031, with an annual interest of 2.95%. Marvell are hoping to exploit the benenfits of leveraging up, by benefitting from the tax shield arising from tax benefits associated with higher debt. It is worth noting that Inphi’s growing cash flow can finance the interest expense from senior notes.
Risks
The semiconductor industry is technologically fast growing and has seen cutthroat competition over the past 60 years. There have been numerous notorious failed mergers and acquisitions in the sector, which have primarily occured due to mismanagement and overestimated synergies. The interest expense of Marvell has increased 41.86% in the past year; With the issuance of senior notes, Marvell should critically manage its interest expense.
By Parasurama Pravee
