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MACOM Poised to Acquire AppliedMicro, Big Changes to Follow

November 28, 2016

Growth by acquisition is a well-known practice, and recently, MACOM announced the establishment of a new definitive agreement to acquire Applied Micro Circuits Corporation, otherwise known as AppliedMicro. The acquisition is going to mean a lot of changes on both sides, and the deal itself—valued at $770 million—is one worth paying attention to in its own right.

The deal calls for MACOM to pay around $8.36 per share for AppliedMicro, which will be paid in a $3.25 cash payment per share and 0.1089 shares of MACOM stock to make up the balance. That represents a 15.4 percent premium over AppliedMicro's per-share price on November 18. When the deal concludes, as it's expected to, MACOM will in turn divest the Compute business—regarded as “well-positioned but non-strategic”—before 100 days have passed after closing. Reports suggest that the Compute business isn't strategically meshing with MACOM's overall plans, and may be sold.

The price may seem out of line, but actually has a clear fact basis; pro forma trailing 12 months (TTM) revenue for the two companies together came in at about $709 million. This includes AppliedMicro's Compute business, however; without Compute, that number drops to $644 million. Basically, MACOM will be paying about a year's revenue to own the company, which isn't really out of line.

What's more, MACOM will be shelling out for a business that's going to likely deliver a lot of value. The two have what some consider to be “highly complementary” product lines, particularly in terms of the optical transport network (OTN) framers, the MACsec Ethernet components, and the PAM4 platform, a single-lambda operation that's been seen as a major player in the market.

MACOM president and CEO John Croteau commented “This transaction will accelerate and expand MACOM’s breakout opportunity in Enterprise and Cloud Data Centers. MACOM will now be able to provide all the requisite semiconductor content for optical networks—analog, photonic and PHY—from the switch to fiber for long haul, metro, access, backhaul and data center. ”

Everything seen about the deal so far suggests that all is reasonable and well. We've got a pair of product lines that will work well together and should give MACOM a much better position in the market going forward, and we can follow that up by noting that MACOM paid a pretty reasonable price to get AppliedMicro in the fold. After all, it's paying a little better than a year's revenues, which is sound, and offering a small but noticeable premium to smooth the way.

There's nothing that looks particularly odd about this deal at all, and it's the kind of deal that should make MACOM a real winner in the end. Only time will tell just how big a win it is, but it should prove a win nonetheless.

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