MACOM has entered into a definitive agreement to acquire Applied Micro Circuits Corporation, a global leader in Connectivity and Computing solutions for next-generation cloud infrastructure and Data Centers, for approximately $8.36 per share, consisting of $3.25 in cash and 0.1089 MACOM shares per share of AppliedMicro. This price for each share of AppliedMicro represented a 15.4% premium over the company’s closing price of $7.25 on Friday, November 18th. MACOM intends to divest the well-positioned but non-strategic Compute business within the first 100 days of closing.
Transaction Highlights Include:
- Transaction valued at approximately $770 million for AppliedMicro’s approximately $165 million in TTM revenue (including the Compute business) and $82 million of cash and short-term investments at September 30, 2016
- MACOM and AppliedMicro’s pro forma combined TTM revenue was approximately $709 million including AppliedMicro’s Compute business, or approximately $644 million excluding the Compute business
- AppliedMicro’s Connectivity business is highly complementary to MACOM’s product portfolio, through the addition of market-leading OTN framers, MACsec Ethernet networking components and the industry’s leading single-lambda PAM4 platform
- Transaction to accelerate MACOM’s significant growth in optical technologies for Cloud Service Providers and Enterprise Network customers serving the high-growth, high-margin Data Center market
- AppliedMicro’s leadership PAM4 solutions based on FinFET technology and custom engagements with top-tier Data Center and service provider customers is expected to strengthen MACOM’s competitive position with those customers
- MACOM expects to improve the profitability of AppliedMicro by divesting the Compute business and by delivering on substantial revenue and cost synergies
- Excluding the Compute business, MACOM expects this transaction to be accretive to its non-GAAP gross margin, non-GAAP operating margin and non-GAAP EPS, in MACOM’s fiscal year ending September, 2017
- MACOM to benefit from over $600 million of tax net operating loss carry forwards
This transaction will accelerate and expand MACOM’s breakout opportunity in Enterprise and Cloud Data Centers. They 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. AppliedMicro’s 100G to 400G single-lambda PAM4 platform should perfectly complement MACOM's leadership in analog and photonic components for Data Centers.
Notably, the IEEE recently recommended the adoption of AppliedMicro’s single lambda PAM4 solution to be an industry standard for enterprise and Data Center connectivity, positioning this technology as the solution of choice going forward. Additionally, AppliedMicro’s Connectivity business aligns well with MACOM's differentiated, high-growth business model, offering non-GAAP gross margins well in excess of MACOM’s long term target operating model, long product life cycles, and sticky customer relationships.
AppliedMicro also provides value-added technologies including SerDes, high speed analog-to-digital and digital-to-analog converters with industry-leading engineering competencies and long product lifecycles. Importantly, this transaction will establish MACOM with an incumbent position supplying strategic components and enterprise and cloud Data Center customers.
MACOM intends to divest AppliedMicro’s well-positioned Compute business within 100 days from closing the transaction, as the business does not strategically align with MACOM’s long-term focus. AppliedMicro has been exploring strategic options for the Compute business and there is known strategic interest among several potential buyers and investors. MACOM will continue to support Compute customers and partners during this transition.
MACOM intends to commence a tender offer to purchase each outstanding common share of AppliedMicro for approximately $8.36 per share, consisting of $3.25 in cash and 0.1089 MACOM shares per share of AppliedMicro. They will assume certain equity awards held by AppliedMicro employees. The transaction value is approximately $770 million in diluted equity value, or approximately $688 million net of AppliedMicro’s cash position of approximately $82 million as of September 30, 2016. The transaction is expected to be accretive to MACOM's non-GAAP gross margin, non-GAAP operating margin and non-GAAP EPS in fiscal year 2017, excluding the Compute business. AppliedMicro stockholders are expected to own approximately 15% of the combined company on a pro forma basis. MACOM expects to pay the cash portion of the acquisition price from cash on hand. The boards of directors of both companies have approved the transaction, which is subject to customary closing conditions and regulatory approvals. MACOM currently expects the transaction to close in the first calendar quarter of 2017.
