2020 Set to be Second-Highest Year for Semiconductor Mergers and Acquisitions
Two huge acquisitions in July and September have guaranteed that 2020 will, at the very least, be the second-largest year in history for semiconductor mergers and acquisitions.
After what was by all accounts a relatively slow start to the year amidst coronavirus uncertainty, analysts have said that 2020 is set, at the very least, to be the second-highest year for semiconductor industry mergers and acquisitions in terms of transaction value.
This is according to a report released by IC Insights that rightfully credits two major acquisitions—ADI’s acquisition of Maxim Integrated and NVIDIA's acquisition of Arm.
What the Report Says
The report—which accounts for purchase agreements for semi companies, business units, product lines, chip IP, wafers, and fabs but excludes software and system-level businesses—says that in the first nine months of 2020, the combined value of semiconductor merger and acquisition (M&A) agreements shot to $63.1 billion.
This is thanks to NVIDIA's $40 billion deal in September to acquire Arm from SoftBank and Analog Devices’ $21 billion deal in July to acquire Maxim Integrated products. Together, these two deals alone account for roughly 97% of the current dollar value for this year.
Two large acquisitions have made 2020 the second-highest year for semiconductor industry M&As. Image used courtesy of IC Insights
In the absence of these two megadeals, 2020 would have been one of the lowest years for worldwide M&A agreement value. In Q1 2020, $1.8 billion in acquisitions had been announced, but this dropped significantly in Q2 2020 to $165 million in the wake of widespread pandemic-related disruption and economic stalling.
The report also credits the U.S.-China trade war and intervention by government agencies to protect domestic semiconductor firms as discouraging some firms from attempting larger acquisitions.
As can be seen above, the dollar value of semiconductor M&As throughout the first nine months of 2020 was more than any year since 2015, falling a hair short of that year. 2015 remains the top year for M&A agreement value where more than 30 deals totaling $107.7 billion were announced.
Looking Ahead to Q4 2020
With three months left of the year, there’s still plenty of time for new deals to close. However, in order for 2020 to be the largest year on record for semiconductor M&A value, $44.6 billion worth of deals need to close. Given existing uncertainty surrounding the ongoing coronavirus pandemic, the likeliness of seeing larger M&As grows slimmer by the day.
Indeed, 2020 will only comfortably surpass 2016 as the second-largest year for semiconductor M&As if NVIDIA and Analog Devices are able to have their deals cleared by government regulators worldwide. Although Analog Devices is unlikely to face much scrutiny beyond what’s normal and expected, NVIDIA's acquisition of Arm could face more challenges than previous acquisitions in the industry.
The NVIDIA-Arm acquisition was one of the most expensive semiconductor M&As in history. Image used courtesy of NVIDIA
Not only is this because the acquisition will be the largest semiconductor acquisition in history, but also because Arm's IP dominates the development of global smartphones and mobile processors. Naturally, this will lead to heightened scrutiny by regulators in markets like Europe, where there are strict antitrust laws, and China.
NVIDIA's move to acquire Arm and its near-total hold on licensed CPU technology in smartphones and other portable systems has created fears about future access to new design cores and instruction sets that are used by dozens of mobile suppliers.
Although NVIDIA has promised to maintain Arm's ability to work independently with other chip manufacturers—even its largest competitors like Qualcomm, Samsung, and Apple—it’s likely that regulators will want to officially set this in stone, and this could take some time.