The merge of Microtech Inc and Standard Microsystems Corporation 0

SMSC building

SMSC were known to have made great strides in developing advanced technology within the automotive industry. Microchip Technology Inc purchased rival Standard Microsystems Corporation last year. The move is expected to benefit the automotive industry long term. MCHP, who are the larger company, will now gain access to such innovations, helping to boost the automotive market.

Previous deal fell through

Microchip had previously bided for another rival company, Atmel Corp. However the deal fell through after a deal worth $2.3 billion was abandoned, back in 2008. The global economic crisis was the main reason behind the breakdown.

This isn’t the first deal of it’s type to occur in recent times. Previously Applied Materials purchased Texas Instruments in 2011 for an estimated $4.9 billion.

SMSC’s speciality

SMSC are specialists in developing microcontrollers which transmit audio and video within automobiles. The top three luxury car manufacturers of BMW, Audi and Mercedes-Benz are some of the company’s main customers, which in itself is a testament to the companies their wonderful ability. The company are said to have an 80 per cent market share in automotive technology within the luxury car market. Car makers such as General Motors, Toyota and Volkswagen are adopting such technology, with it soon becoming the norm.

In confident mood

Microchip’s Chief Executive Steve Sanghi is highly confident that the company’s latest acquisition will enhance the automotive industry in form of highly sophisticated entertainment systems.

The history of SMSC

SMSC were founded back in 1971. They have been long considered as one of the pioneers within the chip industry. To begin with they provided computer network technology. They eventually expanded across a number of industries one of which recently includes the automotive market.

A breakdown of the deal

The cost to Microchip breaks down to them paying $37 per share for SMSC. Microchip themselves are valued at $6.77 billion. The analog semiconductor industry has seen a great show of strength over the past year. Demand for chips has risen. Deals for microchips are now worth a lot more. SMSC’s fastest growing segment was it’s automotive area but was not the largest.
Such deals can prove tricky, as timing is all important to the valuation of a business. Microchip have stated that the total equity of the deal is worth around $939 million. $173 million in investments and cash were accounted for by Microchip. Enterprise value would then stand at $766 million.

Will the automotive industry benefit?

We believe that the expertise and knowledge of SMSC will prove invaluable to Microchip, who will take advantage of such a promising market . In-car automotive technology is a major factor in sales of cars in the United States receiving a massive boost in recent times. There is spectacular new technology be developed all the time with drivers almost being able to talk to their vehicle to follow commands. That’s where SMSC step in. The company have been developing technology which allows drivers to interact with the vehicle. What will we see next? The deal will not only leave of the big three German luxury manufacturers excited, but fans of major brands throughout the rest of the market.