ON Semiconductor Inks an All Cash Deal to Acquire Quantenna

ON Semiconductor Corporation ON inked a deal to acquire the provider of high performance Wi-Fi solutions, Quantenna Communications, Inc. QTNA for a cash consideration of $24.50 per share. The transaction is expected to strengthen the acquirer’s connectivity portfolio.

The purchase consideration represents $1.07 billion in fully diluted equity value and estimated enterprise value of $936 million, after taking into account Quantenna’s net cash of roughly $136 million at the end of fourth-quarter 2018.

The acquisition, awaiting certain customary closing conditions, is likely to close in the second half of 2019. Notably, with cash in hand and existing credit agreement, ON Semiconductoris expected to fund the deal.

The company expects the acquisition to be accretive tonon-GAAPearnings, free cash flow,book value per share and amortization of acquired intangibles.

From the standpoint of Keith Jackson, president and CEO of ON Semiconductor, the buyout is expected to add substantial value to the company’s operations and build a platform for low-power connectivity in industrial and automotive applications. With Quantenna’s Wi-Fi technologies and software expertise, ON Semiconductor will further strengthen its foothold in industrial and automotive markets.

From Quantenna’s point of view, “As part of ON Semiconductor, Quantenna will benefit from a world-class organization in our commitment to providing the best end user experience for our customers.”

On Semiconductor has gained 24.5% on a year-to-date basis, significantly outperforming the industry’s growth of 19.9%.

Acquisitions: Key Catalyst

ON Semiconductor has always been active in acquiring new companies. In the recent past, the company acquired Cypress Semiconductor’s CMOS Image Sensor Business Unit, SANYO Semiconductor, AMI Semiconductor, Analog Devices’ power PC controller business, CMD, Catalyst and SoundDesign.

Further, the company’s acquisition of Fairchild Semiconductor International makes it a leader in the power semiconductor space. The deal will help the company diversify across many markets, with a planned focus on smartphone, automotive and industrial end markets.

Balance Sheet Details

As on Dec 31, 2018, ON Semiconductor had cash and cash equivalents of approximately $1.070 billion, up from $951 million as of Sep 28, 2018.

During the fourth quarter, cash from operations came in at $421 million, ahead of the previous quarter’s figure of $358.2 million. The company also generated free cash flow of $289 million compared with $227.8 million reported in the third quarter.

To Conclude

During the last reported quarter, the automotive (32% of revenues) end-market revenues were approximately $475 million, up 9% year over year.

Further, the company is focused on investing in growth areas such as ADAS and wireless charging in the automotive business to broaden exposure. This will further enhance performance and help the company deliver strong results.

The product launches in the automotive end market for next generation automobile designs along with the existing product portfolio will increase revenues for the business quarter over quarter.

Zacks Rank and Stocks to Consider

Currently, ON Semiconductor carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Cadence Design Systems, Inc CDNS and Symantec Corporation SYMC, both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cadence and Symantec have long-term earnings growth rates of 12% and 7.9%, respectively.

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