Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
In a country not known for its shopaholic tendencies, one Japanese chipmaker’s shopping spree is going strong.
Renesas Electronics on Thursday announced a $5.9bn all-cash deal to buy electronics design software firm Altium, its second acquisition in just about a month. The contrasting share price reactions of the two companies is telling.
On the surface, the deal makes sense. Renesas, which manufactures chips for automakers, would benefit from adding a range of digital tools to its portfolio. Altium, headquartered in San Diego and listed in Australia, offers tools to design circuit boards which could give Renesas an edge with its customers also looking for an electronics product design platform.
Renesas will pay A$68.50 ($44.53) a share for Altium, which had sales of $263mn for the year to June, a premium of over a third to its Wednesday closing price.
Renesas shares on the other hand fell as much as 5 per cent and closed down 2.5 per cent, in stark contrast to a nearly 30 per cent jump in Altium shares. The $5.9bn is significantly higher than the $3.9bn takeover bid Altium received in 2021 from software company Autodesk, which it rejected.
A growing list of big ticket acquisitions in recent years should raise eyebrows. Renesas bought Apple supplier Dialog for €4.8bn ($5.6bn) in 2021 and splashed out over $10bn on both US rival Integrated Device Technology in 2019 and US chipmaker Intersil in 2017. Just last month it said it would buy US-based power chip company Transphorm for $339mn. Getting the most out of those buys could stretch any management team.
As Japanese companies strike more deals on the world stage, their record is questionable. The average premium value of Japanese outbound merger and acquisition deals in the decade to 2020 was 34 per cent, almost a third more than the average of major global deals at 26 per cent, according to Bain.
Moreover, the success rate for Japan’s outbound M&A has been lacklustre with a quarter of transactions made between 1990 and 2014 ending in write-offs, compared with about 5 per cent for US deals.
The rising interest of activist investors has put pressure on Japanese companies to make more efficient use of capital. That has sparked renewed deal appetite, with overseas dealmaking up over 70 per cent last year to more than $50bn. Shares of Renesas are up 44 per cent in the past year riding high on the wave of interest in everything chip related.
It is time now for Renesas to demonstrate that its purchases were the right ones, not make new ones.
Read the full article here