On Thursday, the companies jointly announced that Qualcomm has agreed to acquire NXP for about $47 billion, or $110 per share, in cash. Shares of NXP were up 0.5% Thursday afternoon to $99.14 while Qualcomm jumped 4.5% to $71.29.
By clinching the deal for NXP Semiconductors, Qualcomm is ending its break from M&A and sealing the biggest chip transaction in history.
NXP has been a holding in Action Alerts PLUS since the beginning of this year and the company is the trust's No. 1 ranked stock within its value index. AAP has held a "Buy" (One) rating and $110 price target since initiation.
"We are excited to see the formerly under-the-radar company acquired for $110 in cash, 38% above our cost basis, validating the company's leadership across autos and ability to deliver products which provide the elusive ability to offer connectivity and security," said Jack Mohr, research director for Action Alerts PLUS.
According to data from Dealogic, these are the largest previous M&A deals in semiconductor history:
1. Avago Technologies' (BRCM) purchased its smaller peer Broadcom for $36 billion in May 2015 to emerge as a powerhouse in the communication markets. (The buyer took the target's name post-transaction.)
2. SoftBank (SFTBY) bought ARM Holdings in September 2016 for $32.4 billion in an effort to further boost its presence in the Internet of Things market. SoftBank had earlier identified IoT as a major growth area.
4. In September 2006, Freescale Semiconductor was taken private by a consortium of private equity firms Blackstone, Permira, Carlyle and TPG for $17.6 billion as it continued to struggle as a public company. The transaction took place amidst an LBO boom and was the largest tech buyout at the time.
5. About four years after Freescale went public following its buyout in 2006, Freescale was acquired by NXP for $16.8 billion in March 2015. NXP bought Austin, Texas-based Freescale to gain further scale in the automotive end-market.
The semiconductor universe has been rapidly consolidating as the industry itself starts to mature. In the capital-intensive industry, M&A has proven to be a major source of growth and revenue diversification especially as the cost of borrowing remains cheap for the acquirers. Fear of missing out has also fueled even more deal-making.
Qualcomm is acquiring NXP for the latter's strong footprint in the fast-growing automotive and industrial end-markets as the chipmaker looks to minimize reliance on smartphone market.
While the markets have largely showed support for the marriage since the news first surfaced nearly a month ago, some have cautioned that the acquisition will face significant integration risks involving differences in business models and culture.
For one, Qualcomm doesn't have a track record of running an analog company like NXP Semiconductor and has relied on a handful customers while NXP has a significantly larger customer base. The different nature of the end-markets -- consumer handset market has a much faster cycle than the automotive industry -- may also take some time for the buyer to get accustomed to.
At just a mid-teens multiple of NXP's forward earnings, the $110-per-share offer is also slightly lower than other semi deals. Avago's Broadcom buy came in at 18 times, ON Semiconductor's(ON) - Get Report Fairchild Semiconductor International was at 21 times, Analog Devices is paying 25 times for Linear Technology while Renesas Electronics is shelling out 30 times for Intersil (ISIL) .
Meanwhile, the tie-up could certainly put other chipmakers into the spotlight.
There are more acquisition candidates that could follow footsteps of NXP.
Xilinx(XLNX) - Get Report and Cavium (CAVM) had also been viewed as logical acquisition candidates for Qualcomm. In fact, the tie-up between Qualcomm and NXP could open the door for a potential marriage between Xilinx and Broadcom.