Renesas Acquires Dialog Semiconductor in $6 Billion Deal
Japanese leader in microcontrollers and automotive chips, Renesas, will buy Dialog Semiconductor, one of Apple’s suppliers, in an all-cash deal.
The announcement of the agreement comes following recent speculation that the two companies were in talks, saying yesterday that the acquisition has been approved by the boards of directors of both companies. It’s also the first big acquisition to be announced following what was a blockbuster year for the semiconductor industry in terms of high-profile mergers as global semiconductor sales continue to rise.
Both companies’ shares fell shortly after the announcement due to concerns about Renesas’ balance sheet. Renesas, which is one of the world’s largest suppliers of automotive systems-on-chip (SoC), spent $7.2 billion on its acquisition of IDT in 2019.
The all-cash offer for Dialog Semiconductor is priced at 67.50, over 50 percent higher than its average stock trading price for the past three months.
Renesas Branches Out to IoT
According to Hidetoshi Shibata, president and CEO of Renesas, the rationale for the acquisition is to meet its expansion goals for IoT, power management, and connectivity solutions.
“The transaction we announced today represents our next important step in catapulting Renesas’ growth plan to achieve substantial strategic and financial benefits, following our previous acquisitions," he explains.
Image used courtesy of Toru Hanai and Reuters
In recent years, Renesas has made aggressive moves to invest and broaden its operations beyond automotive to areas such as consumer devices and data centers. In addition to its buyout of IDT in 2019, other high-profile acquisitions include that of U.S. chipmaker Intersil in 2017 for $3.2 billion.
Limiting Reliance on Apple
Founded in 1981, Dialog Semiconductor, whose clients include Apple, Samsung, and Xiaomi, makes power management technology for consumer electronics, wireless chips, and other internet-connected devices. According to Jalal Bagherli, CEO of Dialog Semiconductor, Apple accounted for 55 percent of the company's revenues in 2020 and anticipates that this will fall to around 40 percent by the end of 2021 and 25 percent by the end of 2023.
Dialog Semiconductor is a key supplier for Apple products. Image used courtesy of MarketWatch
Dialog’s reliance on Apple has been something of a pain point for the company. In 2018, its share price fell substantially when it was rumoured that Apple would begin developing its own power management chips for the iPhone. This resulted in an agreement in October 2018 whereby Apple licensed Dialog’s technology, bought several patents, and took on hundreds of its engineers. It was these actions by Apple that forced Dialog to begin diversification efforts
Last year, Dialog Semiconductor acquired IIoT specialist Adesto for $500 million in a bid to branch out into automotive components. This was seen by many as an effort to become less reliant on Apple, which made up two-thirds of Dialog’s $1.4 billion 2019 sales.
A Win for Both Companies
The company now provides power-efficient mixed-signal ICs for a range of customers within IoT, consumer electronics, automotive, and industrial markets. The company’s current product portfolio includes battery and power management solutions, automotive power management ICs, wireless charging technology, and custom mixed-signal ICs.
Renesas says that it hopes to fund the deal by issuing new stock, however, the company has also sought financing of up to $6.9 billion. The acquisition is expected to close by the end of 2021, subject to all the usual regulatory checks and formalities.