Silicon Laboratories Inc. has ridden a wave of interest in the internet of things to new highs over the past few years and now it's making its biggest play yet in the sector: the Austin-based semiconductor company announced Thursday it has agreed to buy Sigma Designs Inc., maker of Z-Wave, a wireless communications technology underlying many web-connected home devices such as smart thermostats and smart alarms.
Silicon Labs (Nasdaq: SLAB) will pay $7.05 per share in cash, or about $282 million, for Fremont, California-based Sigma (Nasdaq: SIGM). The deal is subject to customary closing conditions, such as shareholder and regulatory approval. It is expected to be finalized in the first quarter.
The buyout price is 26 percent higher than Sigma's Dec. 6 closing price of $5.60 per share, Silicon Labs said. Sigma shares shot up on the news Friday, closing at $6.90, up $1.30, or 23.2 percent.
And even if the acquisition falls through, Silicon Labs said Sigma Designs has agreed to sell it the Z-Wave business for $240 million, as long as its shareholders approve.
“This is a smart move,” said Bob O’Donnell, president and chief analyst of California-based Technalysis Research LLC.
Bob O'Donnell, Bob O'Donnell, president and chief analyst of California-based TECHnalysis Research LLC.
“It brings two competitive technologies together — Zigbee and Z-Wave,” said O’Donnell, who spoke at the September Z-Wave Summit in Oklahoma City. “Now, you can embed a single ‘gateway’ device [into an Amazon Echo]," for example, “easily and cost-effectively.”
Sigma Designs also has a smart TV business and a media connectivity business. But Silicon Labs is only interested in its IoT technology; Sigma has agreed to sell or wind down the other two divisions.
That single-minded approach by Silicon Labs makes sense. The company, which was founded in 1996 and went public in 2000, has transformed itself into a leader in the internet of things — connecting everyday objects to the web — since a major pivot in 2010. CEO Tyson Tuttle pushed the company to invest even further in IoT after taking over as CEO in 2012, even though it meant a dip in operating income as it raised expenses to hire workers experienced in the space.
“It took three to four years to build a consensus that the transition to IoT was the right place to go,” Tuttle told Austin Business Journal in an exclusive interview in November. “We have the type of culture that people work on what they want to work on. And the best people can work anywhere.”
Tyson Tuttle of Silicon Laboratories Inc.
The emphasis on the internet of things has led to five straight quarters of year-over-year product revenue growth and its stock hit an all-time high of $95.55 earlier this year. Silicon Labs' shares closed up $3.05, or 3.5 percent, to $90.20 on Thursday ahead of the acquisition announcement.
Because of its hot stock price, Silicon Labs has a market capitalization of about $3.8 billion. For its most recent quarter, it reported net income of nearly $20 million on revenue of $198.7 million for the three months that ended Sept. 30. The company employed about 1,250 people at the end of last year.
Morgan Stanley & Co. LLC is financial adviser to Silicon Labs on the deal and Deutsche Bank is financial adviser to Sigma Designs.