It's Buyout Season...
There’s $3 trillion in cash out in the ether being held by public companies within “the market”. With valuations coming down significantly, we believe that it would make sense that companies are gearing up for an active M&A season. Given this dynamic, we thought it prudent to discuss a few names we have owned that have been bought out at a premium beginning with Silicon Motion (SIMO).
SIMO is a Taiwan-based company that engages in the development, manufacture, and supply of semiconductor products for the electronics market. The firm products include Flash Controllers, Storage Solutions, and others. It offers embedded and expandable storage, radio frequency integrated circuits and embedded graphics. They have established themselves as the leading supplier of SSD (solid state drives) controllers to memory module makers in the United States, China, and Taiwan. In other words, they make the chip that allows your laptop to turn on instantly as opposed to the old PC’s we all know and love that took about 10 minutes to boot up. Everyone remembers the dreaded color wheel. Thanks to the innovation of companies like SIMO long wait times are a thing of the past.
Within the semiconductor space, component manufacturers like SIMO are prime candidates for consolidation. In this case Maxlinear (MXL) offered to buy SIMO on May 5th, 2022 for $3.8 billion USD which equates to $114.34 per share (trading at $88.99 at the time of this writing). We have long believed that SIMO would be bought because of the following: 1) SIMO has been growing y/y at a high rate; 2) It would easily be integrated into a larger portfolio; 3) It’s a fantastic company that was too cheap (was trading at 10.0x 2022 P/E the day before acquisition announcement) to ignore.
The reason the stock is trading so much lower than the purchase price is because the actual structure of the deal includes $93.54 per share in cash and 0.388 shares of MXL stock after the deal goes through. Also, naysayers just don’t believe the deal will go through.
Over the past 12 months GROW Funds has had 3 buy-outs in addition to SIMO. They are listed below along with many others that we have owned in the past.
CSLT – Castlight Health, Inc. develops healthcare software. The company provides a set of applications and services that enables employers to deliver cost-effective benefits, medical professionals, and health plans, as well as offers dashboards, reports, and analytics. – Acquired January 5th, 2022 at a 25% premium
MSON – Misonix produces and distributes medical devices. The Company offers divides for spinal decompression, wound management, tumor removal, and general surgery. – Acquired October 29th, 2021 at a 11.3% premium
CLDR - Cloudera, Inc. develops and distributes software for business data that includes storage, access, management, analysis, security, search, processing, and analysis applications. The Company offers a graphical user interface for applications that allows business analysts, developers, and administrators to create and submit jobs, monitor cluster health, and browse the data. – Acquired June 1st, 2021 at a 24.3% premium.
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Although the timing is uncertain, we can see a path to a buy-out at most of the companies we own in our portfolios.