This month, we take a look at the Maxim acquisition of Teridian, wondering if the multiple is too high or if somebody knows something big about mixed-signal technology in smart metering markets.
The recent news about Maxim Integrated Products acquiring Teridian Semiconductor for $315 million is fascinating. It leads me to the question: How much is mixed-signal embedded computing technology worth when green markets like smart metering are at stake?
Hardware companies are usually valued in transactions at a multiple of annual revenue. Teridian is privately held, but according to information published on the announcement in the Orange County Business Journal, their annual revenue is about $75 million. The company’s major investor is Golden Gate Capital, who declined comment beyond the overall purchase price.
That puts the multiple at 4.2x, which is seemingly expensive, even hefty. Anything above 3x in the embedded computing industry is rare, and the norm is more like 1.3x to 2x. Why would a fairly conservative company like Maxim pay what looks like a premium?
Maxim hints at the reason in the press release, combining two facts about the industry:
“Teridian has 50 percent share in the fast-growing System-on-Chip (SoC) energy measurement market. Its SoCs, which integrate a highly accurate analog front end, a microcontroller, and a display driver, are quickly replacing discrete solutions.”
“Smart meter units using both SoC and multichip solutions are estimated to grow 10 percent annually through 2014. Since SoC-based implementations are estimated to go from approximately one-third of smart meters to a substantial majority over that same period, the demand for SoCs will increase at a much faster pace. Maxim projects its Serviceable Available Market (SAM) for the energy measurement portion of smart meters to reach $380 million by 2014. In addition, the company estimates an additional $375 million of SAM in fiscal year 2014 for other Maxim support and communications products used in smart meters and related smart grid applications.”
In round numbers, if Maxim holds share and the SAM estimates are good, that means they paid 1x projected combined revenue for the Teridian and applicable Maxim lines in five years – which would be a steal. This feels like the “synergy” story that analysts often spin, but this time it might be true.
Maybe. But you can bet right now that a bunch of other companies have taken note of this, and are setting out to destroy that 50 percent market share.
Teridian has some technological strengths in the metering part of the equation and decided to use MCU technology to try to digitize the solution. But our readers know there are plenty of other companies – Texas Instruments, Freescale, Renesas, Atmel, Silicon Labs, Microchip, Actel, and Cypress (and those are just the ones I’ve talked to recently) – who have MCU, mixed-signal, and networking capability and can and are targeting the smart metering and smart grid application space.
This acquisition puts Maxim in a market where they’d like to play, and it’s a good move for them. The continuing saga of MCUs combined with the latest mixed-signal technology punching into smart energy is a huge trend. The actual results and what happens next with both Maxim and the competition will be interesting to watch.