Although stretched valuations and increased regulatory concerns may have deterred interest, consolidation is alive and well, says analyst
Wall Street analysts see mergers and acquisitions (M&A) continuing in the semiconductor sector as the industry matures. On Wednesday, two research firms picked their top M&A targets among semiconductor stocks.
Susquehanna Financial Group analyst Christopher Rolland identified three semiconductor stocks as acquisition targets based on their strategic and financial value.
After a robust decade of M&A in which industry consolidation averaged 10% to 15% per annum, the rate has slowed to about 8% in 2020 and just 4% in 2021 year to date, Rolland said in a note to clients. Stretched valuations and increased regulatory concerns may have deterred interest. However, consolidation is alive and well.
He rates Knowles stock and Semtech stock as neutral and Cirrus Logic stock as positive.
Rolland called Knowles his “top takeout candidate” among semiconductor stocks. The Itasca, Illinois-based company is the dominant global player in microphone MEMs, or microelectromechanical systems. Knowles has adjacencies in capacitors and other precision components.
It provides advanced micro-acoustic microphones and speakers, audio processing, and precision device solutions to the consumer electronics, communications, electric vehicle, and industrial markets.
Semtech is his second pick. The Camarillo, California-based company is best known for making LoRa chips. LoRa, short for “long range,” is a low-power wireless technology for Internet of Things applications.
It is a leading supplier of high performance analogue and mixed-signal semiconductors and advanced algorithms for infrastructure, high-end consumer and industrial equipment.
Austin, Texas-based Cirrus Logic, his third pick. Cirrus Logic’s hardware and software solutions elevate the consumer experience and known for its audio chips.
We anticipate competitive pressures will continue to fuel consolidation as companies look to compete on scale, KeyBanc analyst John Vinh said in a note to clients.
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