Exar Adds Integrated Memory Logic for $233M

NEW YORK (The Deal) -- Chipmaker Exar (EXAR) is casting a wider net through an agreement to acquire onetime Samsung division Integrated Memory Logic for $223 million, a move that will give the buyer exposure to the consumer market for the first time.

Fremont, Calif.-based Exar announced Sunday, April 27, that it was launching a tender offer through its wholly owned subsidiary Image Sub Ltd. to acquire all outstanding shares of IML for approximately $3 a share, as well as the remaining shares at the same price in accordance with a follow-on merger.

The net transaction value will be approximately $94 million, taking into account cash acquired, Exar said. That represents an enterprise value-to-sales multiple of about 1.4 times, based on sales of approximately $67 million over the last 12 months, according to Cowen & Co. managing director Timothy Arcuri. The company is paying a trailing price-to-earnings multiple of about 17 times, he added.

IML designs and makes optical and flash storage technology for display and LCD panels that are used by tablets, notebooks, PC monitors and LCD televisions. Its shares are listed on the Taiwan Stock Exchange, however the company's headquarters are in San Jose, Calif. Among the target's competitors are Maxim Integrated Products (MXIM), Texas Instruments (TXN), Intersil (ISIL), Analog Devices (ADI), Silicon Mitus and Richtek.

The $223 price tag, or $94 million net of cash, represents a good deal for Exar and is largely the result of IML losing Apple (AAPL) as a customer last year, industry observers indicated.

"They're coming in and buying this company at a time where the valuation is very depressed ... [IML's] stock had been in the penalty box because of the loss of the Apple iPad Air business and the [deal's] valuation reflects that loss," Arcuri said over the phone, adding that he believes IML will have the opportunity to re-engage with Apple and expand in China.

The tender offer is set to expire at 3:00 pm in Taipei, Taiwan on May 29, while the deal is expected to close in the second quarter of fiscal 2015, or Sept. 19, 2014 in Taiwan. The transaction remains contingent on the minimum tender of 70% of IML's outstanding shares and approval from the target's shareholders.


IML shares stumbled more than 22% in less than a year to NT$67.6 ($2.24) as of Monday's close in Taiwan, prior to the announcement.

"They did lose a very big customer...for Exar, that enabled them to get a good price for the company," CJS Securities Inc. analyst Jonathan Tanwanteng said in a phone interview. "But the underlying business is very stable," he added.

Both Arcuri and Tanwanteng see the acquisition as being highly accretive for Exar. Specifically, Tanwanteng said he expects it to add about 30 cents to earnings per share during the 2013 calendar year.

Shares of Exar, trading on the New York Stock Exchange as EXAR, added just 0.9% to finish at $11 on Monday, after jumping 7.8%, to $11.75, in early trading.

The acquisition represents Exar's first substantial move on the M&A front in some time, after inking four smaller technology deals since 2009.

Exar most recently bolstered its position in the surveillance space through the acquisition of Stretch on Jan. 14. The company's CEO Louis DiNardo later said in a Jan. 29 call with investors that Stretch generated close to $12 million in revenue last year and that it paid less than one time's sales for the target.

DiNardo, who took the reigns as CEO on Jan. 3, 2012, led Xicor Corp. from 2000 until its takeover by Intersil Corp. in 2004, where he later served as president and COO. The industry veteran also spent 13 years at Linear Technology (LLTC)and eight years at Analog Devices.

"Lou, in particular, is a turnaround specialist," Tanwanteng said, pointing to his leadership at Xixor through its sale to Intersil for about 10 times sales. "The idea is that he's going to do something similar [with Exar]...turn it around and really grow it significantly."

A sale of the Exar could also be in the cards down the road under the leadership of DiNardo, he noted, while declining to identify likely suitors.

Arcuri agrees that Exar is poised to take-off. "[DiNardo] know's how to build a business. He did not come into Exar to have it continue to be a $30-million-dollar-a-quarter business. He has experience running much larger businesses," Acrui said. Sunday's acquisition "gets it to a scale where he can do a lot more things and continue to grow."

Exar tapped Stifel Nicolaus for financial advice on the transaction. An O'Melveny & Myers team that included partner Paul Scrivano and associates Noah Kornblith and Martha Todd, as well as Lee & Li provided legal advice.

IML retained RBC Capital Markets as financial adviser, while Morrison & Foerster and LCS & Partners and Maples and Calder served as legal adviser.

Exar officials weren't available to comment on Monday, while calls and emails to IML weren't returned.

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