Why don’t private equity firms typically buy semiconductor companies?
Minus the Freescale LBO led by Blackstone (and later sold to NXP), I can't think of many other major semis LBOs. I'm curious as to why is that? My initial guess is that semis companies are way too cyclical to make good long term investments, but then again, i feel that we've all see PE firms make a lot of cyclical investments. I also can think of other drawbacks, such as semis companies being CapEx / R&D heavy, operating in highly competitive industries, etc., but am not sure if I'm missing something more obvious or significant. Would be curious to hear thoughts from people more familiar with this!
Bain, Apax, and Apollo have been pretty active in this space over the years. Would recommend looking into some of the deals they’ve done. I think the reason you don’t see more deals is because it’s a very globalized industry which has significant exposure to macro events and is also subject to intense regulatory scrutiny from multiple different competing governments such as the US, EU, and China, which adds a lot of risk.
All the manufacturing is done in Taiwan essentially and basically by TSMC (over half global volume, including over 90% of high end chips) and can't exactly LBO that, so there's not many great options left in foundry. Samsung is next biggest manufacturer (Korea) and also too big to LBO.
In semi capital equipment (SCE) the major players are quite large (LRCX, KLA, AMAT) by mkt cap, also fairly cyclical, but maybe that would be viable…
Then there's the chip designers (too many to name) that are fabless. Plenty are reasonable market caps to LBO (still big), but I don't know if that's a stable enough business model for traditional PE buyouts. Really unsure about that
Keep in mind I'm a fucking intern (and NON TARGET!), I just did an extensive research project on the space for my current buyside internship so have some exposure
Cyclicality in semis has been brutal historically. Geopolitical and regulatory risk is high and the space is notoriously tough on tourists. The industry also used to be a lot more fragmented and a lot of the value of compute/memory flowed to the cloud providers/software. Things are changing though and a lot of funds that avoided the space previously are starting to get interested.
Believe this falls more into the hard tech space. I think it’s less common for generalist firms to get involved here and more common for specialist firms to do so because of the technical angle
Look at the struggles that Bain is having with Kioxia, and KKR with Kokusai Electric.
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