M&A Activity Picks Up in Downturn’s Dog Days

August 11, 2008

Mergers and acquisitions activity
has picked up in the semiconductor equipment and materials industry
in the last few months (see a list below). Two of the biggest
remain up in the air – the Applied/Francisco Partners bid to
acquire ASMI, and the Sumitomo Heavy Industries attempt to acquire
Axcelis Technologies. Another uninvited M&A move also remains
unresolved: Cadence Design has its sights set on taking over Mentor
Graphics, which the Department of Commerce is reviewing. Asyst also
is being pursued.

Many more friendly M&A deals
have gone forward. Gartner Inc. analyst Dean Freeman said the pace
may have picked up due to the downturn. “It is in the nature
of the time you are at,” Freeman said, noting that the
valuations of many companies are at relatively low levels.
Companies that have cash may find takeover targets more willing to
accept an offer now that some companies “are struggling a
bit.”

The Applied/Francisco Partners
attempt to take over ASMI is particularly interesting. ASMI’s
largest shareholders include the founders, who Freeman said
“are very proud of what they’ve done.” By gaining
business at Intel Corp. for both its low-k and high-k solutions,
ASMI made itself attractive enough for Applied to make an offer. At
the same time, ASMI has found it difficult to expand beyond its
narrow base, putting pressure on the balance sheet. Freeman said if
the deals were to go through, Francisco Partners would likely sell
ASMI’s successful furnace operation to Kokusai Electric or
Tokyo Electron, and do it quickly.

If the Applied/ASMI battle has its share of transcontinental
intrigue and backroom financial maneuvering, the Sumitomo Heavy
Industries attempt to buy Axcelis, which is now in a quiet period,
is equally interesting. Freeman said a deal “would be very
healthy for both of them. It would allow the unified company to
offer their best-of-breed tools, instead of having one tool for the
Japan market and another for the rest of the world.” And he
noted that while Axcelis and Sumitomo have been squabbling over
their joint venture, Varian has gained significant market share,
particularly in the single-wafer implant market.

Kulicke & Soffa recently
announced two deals at the same time. The size of the three
companies itself was interesting. In buying Orthodyne (Irvine,
Calif.), K&S was able to acquire a smaller, privately held
company with 280 employees and a long history of technical
innovations. Though Orthodyne does not publish financial
statements, K&S CEO Scott Kulicke said Orthodyne had $110M in
revenues, with gross margins >50%.

In divesting its wire business to
Heraeus, K&S turned to a much larger company that was better
suited to dealing with the rising price of gold. Heraeus (Hanau,
Germany) has annual sales of 3 billion Euros, precious metal
trading revenues of 9 billion Euros, and >11,000 employees.
Kulicke said K&S has been negotiating for some time to sell the
wire business. “The price of gold has driven up the need for
increased working capital. This deal frees up $100M that has been
tied up in working capital. While K&S’s revenues will be
significantly smaller if the gold metal pass through is excluded,
the gross profit will improve by some $40M,” he said.

Kulicke emphasized that K&S and
Heraeus have negotiated a technology development agreement to learn
from the interactions among the wire bonder, the wire, and the
capillary. Kulicke said the technology development agreement with
Hereaus involves “investments on both sides,” adding
that “money will be coming our way to help support that
work.”

Entegris is another
company which recently acquired a privately held company: Poco
Graphite. Entegris CTO John Goodman noted that the semiconductor
industry is no longer growing in the traditional mode of 17% CAGRs,
leading Entegris to search out for smaller companies which would
promote diversification. Poco Graphite is a good example, with
revenues in high-temperature corrosion resistant coatings, and
materials used in heart valves, among others.

With revenues in medical devices, aero/defense, and
“energy in many forms,” Goodman said the Poco Graphite
acquisition “helps us build out our toolbox.”

For Poco Graphite, Goodman said
being acquired by a public company allows the private equity
backers to cash out and keep the venture capital investment cycles
flowing.

Carl
Zeiss SMT to Acquire Israeli Start-Up Pixer Technology

K&S
to Acquire Orthodyne and Divest Wire Business

KLA-Tencor to Acquire Vistec Inspection Unit

ASMI to
Sell NanoPhotonics Subsidiary to Unnamed Buyer

Entegris
to Acquire Poco Graphite for $158M

Dow to
acquire Rohm and Haas in $19B cash deal

Ceradyne
to Acquire SemEquip

Agilent
Acquires Particle Sizing Systems

Agilent
Acquires MTS Systems Nano Business

Dainippon
Screen Acquires Cypress’s Silicon Light Machines

Hedge
Fund Challenges Asyst Technologies

ASMI
Awaits Court Decision; Investors Wait For Applied
Materials