Lam Research Acquires KLA-Tencor
- Enterprise Value $11.3 Billion
- EV/LTM Revenue 4.0x
- EV/LTM EBITDA 14.5x
- Lam Research (Nasdaq:LRCX) announced Wednesday a definitive agreement to acquire KLA-Tencor (Nasdaq:KLAC) in a deal uniting two of the largest makers of semiconductor manufacturing equipment.
- Lam builds machines involved in depositing or etching materials on silicon wafers, while KLA-Tencor specializes in machines that spot defects in chips. Both have been susceptible to a broader slowdown in the overall semiconductor industry, as chipmakers like Intel begin to acknowledge deviations from Moore's law. Analysts have estimated that the market for chip-manufacturing equipment will decline 2% in 2015 to $48.8 billion.
- KLA-Tencor shares lifted 18.8 percent today following news of the deal, while Lam closed up 1.1 percent.
We've Seen This Before
- Big Deals for Small Chips: KLA-Tencor, itself the product of a 1997 merger of two suppliers, becomes the latest acquisition in a sector full of large deals in 2015. Thanks to a combination of low valuations and flagging organic growth, deals involving semiconductor companies have totaled more than $100 billion this year, compared with an average of $38.3 billion over the last five years.
- Deals Throughout the Supply Chain: This year has seen major deals on every level of the semiconductor space. Beyond manufacturing equipment producers like Lam and KLA-Tencor, we've seen significant consolidation among chip manufacturers. Earlier this year Avago acquired Broadcom in what was then the biggest tech deal ever at $37 billion in cash and stock, followed shortly by Intel acquiring Alterra for $16.7 billion.
- Big Results: Lam estimates that yearly revenue of the combined company would amount to $8.7 billion, while generating $250 million in annualized cost savings within 18-24 months. The transaction is predicted to win approval by regulators as both companies operate in distinct segments of the equipment market and both are based in America.
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