Acuity Market ReviewSemiconductor Industry – 2018

December 2018

©Acuity Advisors LLP

1Acuity Advisors | Semiconductor Industry Market Review | Jan 2018Acuity Advisors | Semiconductor Industry Market Review | December 2018 1

Source: Capital IQ, Acuity Intelligence

50

100

150

200

250

300

EDA Fabless IC

Fabrication Integrated IC

IP Providers Tools, Test & Verification

S&P 500 Index

1

4.1x

3.3x

2.2x

2.2x

3.8x

2.2x

4.4x

3.4x

1.7x

1.6x

3.4x

1.7x

Introduction

Market Dynamics

Semiconductor Share Price, by Sub-sector (Jul 2016–Nov 2018, Rebased to 100)

Acuity Market Review: Semiconductor Industry – 2018

Sub-sectors

Semiconductor Trading Comparables (2017–18)

Median EV/Revenue

Median EV/EBITDA

Q3 2018 YoY Rev Growth

11%

10%

9%

9%

-1%

13%

EDA

Fabless IC

Fabrication

21.9x

15.9x

9.1x

9.5x

14.0x

11.3x

24.0x

15.0x

7.3x

7.6x

10.4x

8.0x

17%

18%

26%

26%

15%

20%

LTM Q3 2018 EBITDA Margin

12 Months ended 30th Sept 1712 Months ended 30th Sept 18

▪ When taking a longer term view of 28

months, the industry has been able to

outperform the S&P 500 index by 22%

on average, and the industry’s trading

multiples continue to remain robust,

with EV/Revenue multiples of 2–4x and

EV/EBITDA multiples of 7–24x. EDA,

Fabless IC and IP Providers are trading

at the higher end of these ranges.

▪ There is an increase in political risk due

to the industry coming into the

crosshairs of the recent US-China trade

war tensions and the new US act that

gives CFIUS an expanded scope of

power in industries deemed of national

security, such as semiconductors.

▪ The failed bid of NXP Semiconductors

by Qualcomm exemplifies the relative

fragility of the European market in

relation to deal making. This became

apparent by the interference of

Chinese regulators on the deal.

▪ Global fab tool spending is projected to

end up 14% higher in 2018, with 59 fab

construction projects starting in 2017

and 2018. Combining this with the

increase in R&D expenditure, as a

percentage of revenue, and that

European chipmakers are of relative

smaller size, than their US

counterparts, could mean a new

acquisition wave in Europe in 2019.

▪ Themes, such as the increase in traffic

over communication networks and the

rise in autonomous and connected cars,

could translate into an increased

demand in semiconductors for the

telecoms and automotive industry.

▪ 2018 saw continued headlines about the semiconductor industry from a regulatory and trade perspective. This is

reflected in the recent volatility of share prices, resulting in an annual return on equity of 8%, compared to the S&P

500’s 14%, over the past 2 years. On the other side, from infotainment and comfort to chassis and powertrain, we

see an above industry growth of about 2-3% for the automotive semiconductor industry. This is also consistent with

global billings growth of 20% for the last 14 consecutive months, reaching $149 bn for the year in April 2018.

106.8%

42.4%

72.5%54.2%

29.6%

46.2%

Integrated IC

Tools, Test & Verification

1Q 18 2Q 183Q 16 4Q 16 1Q 17 2Q 17 3Q 17 4Q 17

IP Providers

30.5%

Returns

3Q 18 4Q 18

2Acuity Advisors | Semiconductor Industry Market Review | Jan 2018Acuity Advisors | Semiconductor Industry Market Review | December 2018 2

3%10%

19%

22%6%

41%

Global Mid-Market1 Deal Values & Volumes2, by Sub-sector (2018*)

Global Mid-Market1 Deal Values & Volumes2 (H2 2016–18*)

Transactions Analysis

Top Mid-Market1 Deals (2018*)

▪ Global mid-market transaction volumes stood at 69 deals up to August 2018, valued at $1.0 bn, compared to the

104 deals recorded in CY17, with a combined value of $3.5 bn. Tools, test, and verification companies made up the

largest proportion of these, accounting for 52% of the total deal value. This demonstrates that the mid-market

slow down in M&A activity, but goes hand in hand with the previously outlined increase in FAB tool spending.

▪ Vertical integration across the value chain, and the deployment of new distribution channels is of prime importance

for semiconductor companies to be able to offset the effects of average selling price (ASP) erosion on revenues.

▪ Wide end-use applicability and the swift speed of technology turnover are driving companies to actively acquire

newer technologies and explore emerging markets (especially Asia and North America). Consolidation in existing

markets and the divestment of assets in non-core business areas are both being pursued to strengthen market

positions and maximize share of wallet.

$895

$394

$1182$1076

$728

$581

$415$487

$168

3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18*

22 30 28 24 22 33Deal

Volume

Source: Capital IQ, Company Websites, Acuity Intelligence; Note: 1. Mid-Market – Transactions with deal values in the range $15.0–250.0m, 2. Includes deals with undisclosed transaction values; *includes deals announced up to 31 August 2018

Acquired by Acquired by Acquired by Acquired by Acquired by

5%

37%

6%

52%

Value

Volume

2426

Deal Values In $’m

Acuity Market Review: Semiconductor Industry – 2018

12

Date: 10/05/2018 Value: $134.7m

EV/Revenue: 1.0xEV/EBITDA: 11.2x

Date:03/04/2018Value: $98.0m

Date: 09/05/2018Value: $51.8m

Date: 26/04/2018Value: $17.0

EV/Revenue: 1.7x

Date:28/03/2018Value: $11.3m

EV/Revenue: 0.9x

TEL NEXX - Subsidiary of

EDA Fabless IC Integrated ICFabrication IP Providers Tools, Test & Verification

3Acuity Advisors | Semiconductor Industry Market Review | Jan 2018Acuity Advisors | Semiconductor Industry Market Review | December 2018 3

Global M&A Mid Market2 Deal Volumes by Geography (H2 2016-18*)

Transactions Analysis (Cont.)

Source: Capital IQ, Company Websites, Acuity IntelligenceNote: 2Comprises sub $250.0m deals, including deals with undisclosed transaction values; *includes deals announced up to 31 August 2018

▪ Asia and North America were the major centers for acquisitions in H2 2016-18* with about 85% of the total deals

being executed by acquirors in these regions.

▪ Asian companies experienced a significant amount of interest from acquirers across the globe (including other

Asian counterparts). In particular, companies based out of China and Taiwan are aggressively acquiring companies

in their home country and across Asia to gain build manufacturing capabilities and new technology.

▪ European markets witnessed steady cross-border investment with ~30% of acquisitions being carried out by North

American acquirers and ~10% being carried out by Asian acquirers.

14%86%

61%

39%

81%

4%

13%

2%

28%

59%

9%3%

6% 3%

84%

7%

24%76%

Headquarters of Semiconductor Buyers

Headquarters of North American Buyers

Headquarters of European Buyers

Headquarters of Semiconductor Targets

North America

Europe

Headquarters of Asian BuyersAsia

Acuity Market Review: Semiconductor Industry – 2018

Europe Asia OthersNorth AmericaRoW

4Acuity Advisors | Semiconductor Industry Market Review | Jan 2018Acuity Advisors | Semiconductor Industry Market Review | December 2018 4

▪ Across the sector, we believe semiconductor

companies will enjoy sustainable long term

revenue growth. This strong growth has

warranted for higher valuations over the past

years.

▪ Integrated IC Providers were acquired at higher

revenue multiples than those of other

semiconductor businesses due to their high

average revenue growth rate and EBITDA

margin of 11% and 26%, respectively.

▪ The advent of newer technologies requiring

faster computing speeds has propelled demand

for vertically integrated IC providers that are

deploying cutting-edge manufacturing

technologies at new process nodes.

▪ The rising cost of manufacturing and an ever-

evolving range of upcoming consumer demand

would continue to drive consolidation in the

industry. Companies can continue to resort to

inorganic means of growth and collaboration to

keep up with competition and achieve

economies of scale.

Semiconductors, Precedent Transactions (H2 2016–18*) –EV/Revenue Multiples

Semiconductors, Precedent Transactions (H2 2016–18*) –EV/EBITDA Multiples

0.6x 0.6x2.0x

0.5x

1.6x 1.3x

3.2x

1.6x

Fabless IC Fabrication Integrated IC Tools, Test &Verification

3.6x4.4x

6.4x 6.4x

Median

Max

Min

Acuity Market Review: Semiconductor Industry – 2018

Valuation Analysis

6.2x 5.6x8.4x

15.3x

8.8x

13.6x

Fabless IC Fabrication Tools, Test &Verification

11.2x

22.6x

19.6x

Median

Max

Min

Source: Capital IQ, Acuity Intelligence; Note: *includes deals announced up to 31 August 2018

▪ We know semiconductors – that’s why we’re the

trusted M&A advisors for the industry. We are the

most active and successful European Mid-Market

Investment Bank for the semiconductor market

having completed more deals than any other firm.

▪ We are skilled at getting to the heart of a technology

business, understanding what will attract buyers, and

building long-lasting relationships. We have an

extensive network through the entire semiconductor

industry.

About Acuity Advisors

▪ We have an unrivalled understanding of the

industry’s complexities and personalities – our track

record and client feedback are compelling evidence

of that.

▪ We’re an international firm – most of our deals are

cross-border, from offices in London, Munich,

Shanghai and Silicon Valley – but we’re grounded in

our approach. We move quickly when it’s needed,

and we’re around for the long haul when patience is

a virtue.

24 People4 Offices 7 Semi Transactions

CY16/CY17

10 Year Track

Record Type: Business Sale

Acquired by

Type: Business Sale

Acquired by

Type: Business Sale

Acquired by

Type: Divestment

Acquired by

5Acuity Advisors | Semiconductor Industry Market Review | Jan 2018

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