For a chip industry that had seen M&A activity slow to a halt amid heightened trade tensions, Renesas's $7.2 billion deal, announced on Tuesday, to buy Integrated Device Technology (IDTI)  is a sight for sore eyes.

Certainly, the fact that Renesas is a Japanese company, rather than an American one, might have much to do with the company's willingness to pull the trigger on a deal that will need to be approved by Chinese regulators. Nonetheless, Renesas's move might just be a sign that some pent-up appetite exists for further chip M&A -- appetite that could be unleashed in the event that trade tensions thaw.

At a buyout price of $49 per share -- it spells an equity value of $6.7 billion, and an enterprise value of $7.2 billion -- Renesas is paying a 29% premium to where IDT closed on Aug. 30, prior to the company's initial disclosure that it was in buyout talks with IDT. The purchase price is equal to 23 times IDT's fiscal 2020 (ends in March 2020) non-GAAP EPS consensus of $2.10. Renesas sees the deal closing in the first half of 2019.

IDT, one of four names discussed in a Jan. 31 column I wrote for The Deal about potential chip M&A targets, is the latest in a string of analog/mixed-signal chipmakers to ink buyout deals in recent years. Past deals include Microsemi being acquired by Microchip Technology (MCHP - Get Report) , Linear Technology being bought by Analog Devices (ADI - Get Report) and International Rectifier taken out by Infineon. There was also Intersil, which was acquired by Renesas for $3.2 billion in early 2017.

IDT's strong data center exposure -- its chips are a common sight within servers and Ethernet switches -- likely appealed to Renesas, given the health of this end market as cloud capital spending continues rising at a brisk pace. Some 40% of IDT's June quarter sales involved data center products, and IDT claims direct relationships with major cloud service providers.

Renesas sees value in IDT's diverse analog/mixed-signal product portfolio. Source: Renesas.

Another 29% of its sales came from the telecom infrastructure market -- a field that has seen soft demand in recent years, but should soon get a boost from 5G network build outs. The consumer market, where IDT's wireless charging ICs have been designed into high-volume Android phones from Samsung (SSNLF) and others, accounted for 20% of revenue. Just 11% of its revenue came from auto and industrial end-markets, which Renesas, as a top-3 player in the automotive chip and micro-controller MCU markets, has strong exposure to.

A Renesas presentation outlining the company's case for the IDT deal touches on the cross-selling opportunities opened up by the acquisition, along with IDT's exposure to a diverse array of end-markets. And as the case with so many prior chip deals, the acquiring company is trumpeting the deal's financial synergies: Renesas forecasts over $80 million in annual cost savings within two years of the deal's closing, and a $250 million-plus boost from growth and cost savings to its annual non-GAAP operating income "in the long-term."

Renesas also suggests in the presentation that it's open to making additional chip acquisitions, particularly in the analog/mixed-signal space. Its mindset contrasts a bit with that of Dutch chipmaker NXP Semiconductors (NXPI - Get Report) , which signaled at its Sept. 11 analyst meeting that it will only pursue "tuck-in" deals in the near-term.

It also contrasts with Broadcom's (AVGO - Get Report) new M&A priorities: After seeing its hostile bid for Qualcomm  (QCOM - Get Report) thwarted by the Trump administration, Broadcom inked a surprising $18.9 billion deal to buy enterprise software firm CA Technologies (CA)  while suggesting it's open to making additional purchases of "infrastructure" software firms in time.

Should large-cap American chipmakers decide that strategic motivations similar to the ones that led Renesas to go after IDT justify pursuing large chip deals of their own, there's a long list of targets that they could go after, from an analog/mixed-signal firm such as ON Semiconductor (ON - Get Report)  to an MCU firm such as Cypress Semiconductor (CY - Get Report) to an RF chipmaker such as Qorvo (QRVO - Get Report) . That is, assuming a trade deal emerges that calms fears about the deal ultimately being rejected by China's antitrust regulator MOFCOM.

MOFCOM's stonewalling of Qualcomm's $47 billion deal to buy NXP -- Qualcomm walked away from the deal after it wasn't approved by a July 25 deadline -- has clearly cast a pall on the chip M&A landscape. And with the Trump Administration both pushing ahead with plans to impose tariffs on another $200 billion worth of Chinese imports and raising the possibility of slapping tariffs on an additional $267 billion worth of imports, odds are that U.S. chipmakers that were put on edge by the Qualcomm/NXP saga remain that way today.

However, trade talks between the U.S. and China continue intermittently, and equity markets continue acting in a manner that suggests many investors are wagering a compromise will be reached before massive economic damage is done. Moreover, Beijing has recently taken some steps to assure U.S. multinationals that their local operations won't be impacted by trade tensions.

None of that guarantees Washington and Beijing will hammer out a trade agreement in the near future. But should it happen, the Renesas-IDT deal could easily be followed by a fresh round of dealmaking by U.S. chipmakers.

Editor's note: This article was originally published by The Deal, a sister publication of TheStreet that offers sophisticated insight and analysis on all types of deals, from inception to integration. Click here for a free trial.

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