Crossroads

At the intersection of technology, finance and the Pacific Rim.

Tuesday, September 19, 2006

LBOs and Technology

Technology and Leveraged buyouts previously were oxymoronic--meaning that they just did not happen except in rare instances. The reason is that technology companies were thought to be too volatile to take on much debt (necessary for making an LBO work from an investor perspective). All that has changed with the recent announcement that a group of private equity investors have agreed to acquire Freescale Semiconductor (formerly the semiconductor business of Motorola) for nearly $18bn. For details on the deal, refer to this article.

2 Comments:

Blogger ky choi said...

Mobile convergence seems a driving force of this type of LBOs of technology-based firm. Do you think that a buyout firm will sell Freescale in a near future?. Freescale's financial status looks really good, then it would become better after this buyout?. This LBO case can be regarded as a future intrinsic value-based buyout, or short-term market value-based buyout?.

6:14 PM  
Blogger Stan Sakai said...

sorry for the delayed response, KY. My view is that since Freescale is a relatively large company, there are not many players who can absorb them--maybe companies like ST Micro (who have their own issues)or TI (but just don't see that since they could have gone after them this time but did not and why would they when they have a good thing going?. So these investors are in for the long term. Even if they go public, they own such a large chunk of the company that it will take quite a long time to liquidate their shares.

8:12 AM  

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