Private equity has been giving semiconductor companies a lot of attention. First there was the sale of Philips semiconductor (now called NXP) to a consortium comprising of Kohlberg Kravis Roberts & Co (KKR), Bain Capital, Silver Lake Partners, Apax and Alpinvest Partners.
Then there was the surprise Freescale Semiconductor sale to a consortium for significantly more than the price for NXP despite the similarity in the two companies’ 2005 revenues.
I tried to look for some empirical evidence for the sudden and new found interest of these very savvy investors in semiconductors.
1. Less volatility through the cycle- the industry once notoriously cyclical has seen less volatility. Indeed if you look at Capex/Sales, it has shrunk considerably as companies have begun to better manage their investments.
2. Higher Free Cash Flow due return to high EBIT margins-Better utilization (due to better capacity planning) and better Average Selling Prices are giving better margins.
3. Lower capital market valuations semiconductor companies- As companies have improved, their market multiples have compressed. The Market cap/sales ratios have severly shrunk since the early 2000sIs it any surprise that the barbarians are knocking at the gates?
Then there was the surprise Freescale Semiconductor sale to a consortium for significantly more than the price for NXP despite the similarity in the two companies’ 2005 revenues.
I tried to look for some empirical evidence for the sudden and new found interest of these very savvy investors in semiconductors.
1. Less volatility through the cycle- the industry once notoriously cyclical has seen less volatility. Indeed if you look at Capex/Sales, it has shrunk considerably as companies have begun to better manage their investments.
2. Higher Free Cash Flow due return to high EBIT margins-Better utilization (due to better capacity planning) and better Average Selling Prices are giving better margins.
3. Lower capital market valuations semiconductor companies- As companies have improved, their market multiples have compressed. The Market cap/sales ratios have severly shrunk since the early 2000sIs it any surprise that the barbarians are knocking at the gates?
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