On July 18, chip giant ARM was acquired by Japan’s SoftBank for £24.3 billion, marking the largest acquisition since Masayoshi Son founded SoftBank.
SoftBank’s offer for ARM was £17 per share, a 43% premium over ARM’s closing price the previous week. With such a high premium, SoftBank’s focus is clear: the Internet of Things (IoT), which Masayoshi Son has repeatedly emphasized as the reason for the acquisition. Although he did not disclose specific strategic details, this rationale is sufficient to make everything clear: targeting core technologies and infrastructure for the next generation is a consistent strategy for SoftBank, and the approaching era of IoT is the primary reason for SoftBank’s acquisition of ARM and its investment in chip IP architecture.
Coincidentally, just a month before SoftBank’s acquisition of ARM, Chinese capital firms JianGuang Asset and ZhiLu Capital had already made a move, acquiring the standard product chip business of international semiconductor giant NXP for $2.75 billion, marking the largest overseas acquisition in China’s semiconductor industry this year.
Both involve chips and unprecedented scale, and the surge in mergers and acquisitions in the chip industry highlights the forward-looking strategies of visionary companies both domestically and internationally.
However, a closer analysis reveals significant differences between SoftBank’s acquisition and the actions of Chinese companies. Firstly, China’s semiconductor industry is still in a developmental phase, and its foundational layout needs improvement. Secondly, compared to SoftBank’s numerous global mergers and investments, the overseas acquisitions by Chinese industries are still in their infancy.
Therefore, from this perspective, the acquisition of NXP’s standard product chip business by JianGuang Asset and ZhiLu Capital presents many points worth considering. This is not only of great significance for the development of China’s semiconductor industry but also provides valuable reference for Chinese capital’s global acquisitions.
Insight One: Five Standards are the Fundamental Conditions for China’s Overseas Acquisitions
NXP, headquartered in Eindhoven, Netherlands, is one of the top ten semiconductor companies globally, dominating the automotive semiconductor market and ranking among the top seven in the industrial semiconductor market. In 2015, NXP’s standard product chip business generated revenue of $1.24 billion, with a pre-tax profit exceeding $200 million.
So, why would NXP willingly part with this “cash cow,” and how did JianGuang Asset and ZhiLu Capital manage to stand out in a competitive bidding process?
Li Bin, chairman of JianGuang Asset’s investment committee, stated that when selecting acquisition targets, JianGuang Asset has five almost stringent standards: first, the industry position must be among the top two globally; second, it must possess core technology; third, the profit margin must be twice the domestic average; fourth, it must have a stable market, cash flow, and future development space; fifth, it must have a global layout.
These five standards act like a sieve, ultimately filtering for targets that can bring value growth to JianGuang Asset and the domestic industry, which is a crucial factor in JianGuang Asset’s successful acquisitions. NXP’s standard product chip business meets these criteria, which is why JianGuang Asset was determined to acquire it.
The international semiconductor and finance backgrounds of JianGuang Asset’s management team laid a solid foundation for communication between both parties, becoming a significant factor in the success of the acquisition. “It was not just about winning on the bid. Besides understanding the industry, securing funding, and providing value-added services post-acquisition, our greatest advantage was our communication ability with the acquired team,” said Sun Wei, general manager of JianGuang Asset, when discussing the secret to their victory.
This acquisition, expected to be completed in the first quarter of next year, includes not only NXP’s standard chip product design department but also its two wafer manufacturing plants in the UK and Germany, as well as three packaging and testing plants in China, Malaysia, and the Philippines, involving approximately 11,000 employees.
Prior to this acquisition, JianGuang Asset, backed by strong financial capital from institutions like China Construction Investment, had already secured NXP’s RF power business for $1.8 billion. Successfully acquiring its standard product chip business means that JianGuang Asset will not only gain NXP’s leading semiconductor technologies for automotive and industrial markets but also acquire dozens of production lines and thousands of products globally, thereby filling multiple domestic gaps and setting a new benchmark for Chinese companies in overseas acquisitions.
It is evident that JianGuang Asset’s strict five standards at the outset of the acquisition were the core key to its success. Many Chinese companies have initiated overseas acquisitions, but many have invested money without achieving the desired results. Clear targets and objectives are essential; in a sense, JianGuang Asset’s five standards can serve as foundational conditions for Chinese companies undertaking overseas acquisitions.
Insight Two: The Development Direction of the Semiconductor Industry Will Be a Win-Win Situation
It is undeniable that China’s semiconductor industry is still in a developmental phase, and its foundational layout needs improvement. How can China’s semiconductor industry achieve a win-win situation through acquisitions with the global industry?
For JianGuang Capital, after acquiring NXP’s RF power business, further incorporating its standard product chip business will facilitate multi-faceted layouts in upstream and downstream, achieving synergy and forming an industrial cluster development. This could potentially make it the largest and most profitable IDM enterprise in China’s semiconductor industry.
The acquisition of NXP’s standard product chip business by China is undoubtedly a significant boon for the domestic semiconductor industry, meaning that the domestic semiconductor sector can quickly gain access to global core technologies, thereby driving the accelerated upgrade and iteration of China’s local integrated circuit industry, truly catching up with the world’s advanced levels.
For NXP, the reason it willingly parted with its “cash cow” standard product chip business is primarily due to the need to shift its strategic focus. The global long-term development trends of ubiquitous smart applications, security demands, and network connectivity have prompted NXP to decisively adjust its industrial strategy, shifting its future development focus to high-power mixed-signal product business, aligning with its strategic vision of “smart living, secure connections.”
To accelerate strategic deployment and business focus, NXP aims to create a “power plant” in the high-performance mixed-signal industry, equipped with a more streamlined and efficient team, fully concentrating on differentiated high-growth and high-margin businesses. NXP had to make painful sacrifices, narrowing its product line and abandoning RF power and standard product chip businesses to focus on its core strategy of “security and IoT connectivity.”
At the same time, selling these business units provides NXP with ample financial support for its strategic shift, facilitating the acceleration of its strategic advancement.
Therefore, in the long run, this acquisition represents a win-win situation for JianGuang Capital, the Chinese semiconductor industry, and NXP. China’s semiconductor industry can also dance in sync with the global industry.
When China’s local integrated circuit industry further develops, perhaps the next “SoftBank’s sky-high acquisition of ARM” will occur with a Chinese company.
Insight Three: How to Maintain Sustainable Development After Acquisition?
With the strong rise of China’s economic strength, domestic companies acquiring overseas assets is no longer a novelty. However, it is worth noting that, apart from successful cases like JianGuang Asset’s acquisition of NXP’s RF power and standard product businesses, there are also instances where companies spent large sums only to end up with a hollow shell, losing management teams, core technologies, and talent, or acquiring technologies and products that are already obsolete in overseas markets.
Of course, acquiring NXP’s standard product chip business is just the first step in JianGuang Asset’s successful acquisition. As a private equity investment firm with no substantial management talent reserves, how JianGuang Asset manages the five factories it has acquired, integrates the workforce, retains existing customers, and explores new markets will be the real challenges it faces next.
In this regard, NXP’s emphasis on talent cultivation during its 30 years of development in China is also a key aspect of this acquisition.
In the past two years, NXP has strongly supported the “Made in China 2025” and “Internet Plus” strategies, providing localized services for technology and products in the Chinese market, and has been involved in almost every field of IoT security and connectivity solutions, including deep collaborations with domestic companies like SMIC, Huawei, and Datang Telecom to promote the upgrade of China’s manufacturing industry. NXP has also provided IoT solutions for Haier’s first smart home robot and Xiaomi’s smart home, among other cross-industry collaborations with Chinese companies.
More importantly, while bringing world-leading technologies and solutions to China, NXP actively seeks to support the cultivation of local talent through international exchanges, participating in the training of talents in China’s electronic information and embedded systems. This is NXP’s grand strategy in China—teaching people to fish rather than just giving them fish. For instance, Zheng Li, president of NXP Greater China, has been promoting talent cultivation programs, and NXP has signed strategic cooperation agreements with the Ministry of Education for talent cultivation in higher education, establishing 200 joint laboratories with 150 universities, and co-hosting the National College Student Intelligent Vehicle Competition for ten consecutive years.
It is foreseeable that after selling the standard product business to JianGuang Capital, NXP will further collaborate with JianGuang Capital in talent cultivation, bringing out a Chinese management team for the wafer and packaging plants, which is also key to ensuring sustainable development post-acquisition.
Although NXP and JianGuang Capital already have many foundational plans, the integration after the acquisition still faces numerous challenges. In fact, this is a common challenge faced by any company globally when undertaking overseas acquisitions, including JianGuang Asset and SoftBank.
From a business logic perspective, SoftBank’s substantial acquisition of ARM is a win-win situation, but it is not without uncertainties. The ultimate success or failure of the acquisition largely depends on the subsequent integration of both teams and the realization of synergies, which are crucial next steps.
【Conclusion】
Li Dongsheng, chairman and CEO of TCL Group, once reflected on the struggles and gains of TCL’s ten years of internationalization. At the end of 2003, TCL was close to reaching an agreement with Thomson, “but I couldn’t resist the temptation because acquiring it would make us the third largest in the industry, which was very tempting. Looking back now, businesses must follow the rules of the industry. If we had talked for two more months, we could have gotten better conditions. Resisting temptation and maintaining calm judgment at all times is TCL’s lesson.”
More than a decade later, as Chinese companies embark on overseas global acquisitions, they should be cautious, calm, and bold. Although the process of judgment and grasping is not easy, it is an important step that Chinese companies must take to seek greater development. Only by getting this step right can acquisitions that “look beautiful” truly materialize and lead to greater growth.
The overseas acquisition standards and strategies of JianGuang Asset, as well as their long-term development planning post-acquisition, are worth deep reflection and reference for Chinese companies seeking overseas acquisitions. Moreover, this acquisition occurs in the semiconductor industry, where China urgently needs to catch up with the world’s advanced levels, requiring more strategic planning and a broader win-win perspective to dance in sync with the global semiconductor industry.
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“Li Yinghuan” (ID: yinghuanlee) is a member of the Wemedia Alliance, covering over 10 million people, awarded as one of the top ten self-media in 2013, and recognized as the most influential self-media in 2014 and 2015, as well as one of the top ten technology observers on Weibo in 2015.
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