CAMARILLO & IRVINE, USA: SEMTECH Corp., a leading supplier of analog and mixed-signal semiconductors for high-end consumer, computing, communications and industrial equipment, has entered into a definitive agreement to acquire Sierra Monolithics, Inc. for $180 million in cash.
Headquartered in Irvine, California with design centers in Irvine and Redondo Beach, California, Sierra Monolithics provides high performance analog ICs and solutions for a wide array of communications systems and applications. The transaction is expected to be accretive to Semtech’s GAAP earnings per share within 12 months of the transaction closing and is expected to be immediately accretive to Semtech’s Non-GAAP gross margins and Non-GAAP earnings per share.
Sierra Monolithics, Inc. (SMI) was founded in 1986, and has approximately 110 employees including over 60 engineers. SMI has experienced significant growth over the past few years fueled by rapid growth in traffic over both wireline and wireless telecom networks.
Market growth drivers for SMI include growing video traffic over the internet, competition between cable operators and telecom carriers, emergence of datacenters, cloud computing, and wireless data services. Over the last five years, SMI has grown revenue at a CAGR of over 40 percent.
SMI is the recognized leader in the 40Gbps and 100Gbps SERDES space. Its 40Gbps SERDES product portfolio includes multiple chip sets which address all the major 40Gbps modulation schemes currently being deployed worldwide. These leadership products have enabled SMI to become a key supplier to almost all of the major telecom OEMs and Optical module customers offering 40Gbps solutions.
Following up on its success in the 40Gbps SERDES arena, SMI was also the first semiconductor company to provide both client side as well as line side 100Gbps SERDES chip sets for the emerging 100Gbps telecom and datacom markets. In addition, SMI leverages its expertise in high frequency wireless technologies and protocols to deliver wireless solutions for high performance military and wireless networking applications.
Sierra Monolithics expects to generate approximately $50 million of revenue for calendar year 2009 with gross margins towards the high end of Semtech’s stated gross margin model of 55-60 percent. Driven by its growing product portfolio and the rapid growth markets it addresses, Sierra Monolithics expects to continue the rapid growth vector it has been on over the last five years, including revenue growth of approximately 20-30 percent in calendar year 2010.
Sierra Monolithics’ focus on providing leading solutions to the core communications infrastructure and leading edge defense markets enhances Semtech’s value proposition to major customers in these markets. With the acquisition of Sierra Monolithics, Semtech adds an additional, high growth revenue stream to Semtech’s portfolio of growth engines.
“We are extremely excited to have Sierra Monolithics become a part of Semtech,” said Mohan Maheswaran, President and CEO of Semtech.
“Sierra Monolithics has the benefit of over 20 years of innovation, design and commercialization of high performance Analog ICs and solutions and brings to Semtech a world-class engineering team. Together, we will create a portfolio of wireless capability from ultra low power, sub 1Ghz platforms targeted at industrial applications, through Microwave RF and Millimeter wave technology platforms targeted at the highest performance communication challenges in the industry.
"In addition, SMI’s leadership position in 40Gbps and 100Gbps communications will elevate Semtech’s importance to the communications infrastructure customers who already purchase our leading Protection, Power Management and Timing Synchronization products. Together we are well positioned to capitalize on some of the fastest growing market segments in the communications and industrial segments.”
“Today represents an exciting milestone for Sierra Monolithics,” said Charles Harper, Founder and Chairman of Sierra Monolithics. “We are thrilled to be joining the Semtech team, an excellent fit both geographically and culturally. Our respective product portfolios and customer bases are extremely complementary, and Semtech’s scale and resources enable Sierra Monolithics to fully realize and expand the long-term value of our team and technology.”
Charles Harper and Javed Patel, Sierra Monolithics President and Chief Executive Officer, will both become members of the Semtech Leadership Team reporting to Mohan Maheswaran after the closing of the transaction.
Under terms of the agreement and plan of merger, Semtech will pay the stockholders of Sierra Monolithics $180 million in cash at the closing. In addition, at the closing Semtech will also assume the existing unvested options of Sierra Monolithics’ employees valued at approximately $8 million and at closing will grant to employees additional equity incentives up to $12 million in value.
$18 million of the cash consideration will be placed into escrow for twelve months in order to meet any indemnifiable claims pursuant to the terms of the definitive agreement. The transaction will be funded with Semtech’s existing cash reserves. In association with repatriating cash domiciled overseas to fund the transaction, Semtech expects to incur a one-time tax liability of approximately $33 million in Q3 FY10.
The closing of the transaction remains subject to closing conditions, including the expiration or termination of the Hart-Scott-Rodino Act waiting period and obtaining other required consents.
Morgan Stanley & Co. Incorporated provided exclusive financial advisory services to Semtech and Paul, Hastings, Janofsky & Walker LLP served as legal counsel for Semtech. Jefferies & Company, Inc. served as financial advisor to Sierra Monolithics and Morrison & Foerster LLP served as legal counsel for Sierra Monolithics.