Today the tech sector was once again rocked by news of an imminent merger. At around 10:00AM (PST), rumors starting circulating of forthcoming acquisition by Qualcomm (QCOM) of semiconductor company NXP (NXPI).
Both companies rose on the news, NXPI by approximately 16% and QCOM by 6%. The two tech concerns are key players in the new wave of connectivity that is changing the way big data is collected, transformed, secured and utilized. The so called Internet of Things (IoT), or the digitization of the real world via sensors and analytical platforms is in an acceleration mode.
As IoT solutions become more viable and more clearly increase value to industrial and personal processes, companies with key products or platforms will progressively become more likable targets for larger tech corporations.
This coming wave of connectivity is, in our view, inescapable and for this reason three months ago we launched a new portfolio centered on companies we believe to be on the forefront of this Internet revolution. Since inception, we already had one acquisition at a 40% premium when Softbank purchased ARM Holdings, a company specialized in semiconductor designs which was a core component in our portfolio. NXP Semiconductors is also a component of our portfolio; should a metric similar to the ARM Holdings deal be applied in the NXPI transaction, we could see an additional 20% upside in the position. The NXPI acquisition would most likely be a cash transaction as the company resides abroad and QCOM is holding approximately $29 billion (incidentally the price tag discussed for NXPI is $30 billion) in overseas cash. These rumors could also spark a bidding war as Evercore ISI reports that Broadcom could push forward an alternative bid at $116 per share.
Two mergers in such a short period of time in our fairly concentrated portfolio probably mean that the industry has reached an understanding of how critical this juncture is. The Internet is about to enter its phase 2.0 and there will be winners and losers. Strategic acquisitions will become a recurrent affair.
Please feel free to call us should you want to discuss further our IoT portfolio.