After dealing with its stock-option issues and getting back into compliance with the Nasdaq, MIPS Technologies (NASDAQ:MIPS) is reading to make some deals. On Monday, the company agreed to shell out $147 million for Chipidea, and the deal to unite the two chip designers seems like a smart move.
MIPS focuses on digital chips for cameras, broadband devices, set-top boxes, and more. As part of the semiconductor licensing market, the company does not make physical chips, instead creating blueprints for other manufacturers. With a market cap of $330 million, it's a small competitor to ARM Holdings (NASDAQ:ARMHY) and its more than $6 billion market cap. Acquiring Chipidea is expected to make MIPS the second-largest player in semiconductor licensing technology.
Chipidea creates designs for analog/mixed-signal systems; squeezing both types of circuits on a single chip is critical for mobile devices. It's complex technology, but the company has several founders who are experts in the field, along with more than 240 analog designers.
Chipidea also has agreements with 13 of the top 15 global semiconductor companies, including heavyweights such as Sony (NYSE:SNE), Broadcom (NASDAQ:BRCM), Motorola (NYSE:MOT), Intel (NASDAQ:INTC), and PMC Sierra (NASDAQ:PMCS)
Nearly 90% of the industry's analog design is managed in-house. However, the difficulties of finding technical talent and the importance of getting to market faster have spurred many companies to begin outsourcing that fuction. That trend should be a boon for Chipidea.
From 2000 to 2006, Chipidea's revenue grew at a compounded annual rate of roughly 32%. MIPS is acquiring the company for 4.5 times its trailing-12-month revenue of $32.8 million. That seems fairly reasonable in light of the company's strong team and customer base. In June, for example, Mentor Graphics purchased Sierra Design Automation for roughly the same multiple.
Even though it's been a while since MIPS made a major deal, the company seems to have done its homework on this one. It should be a nice boost for growth for the next couple years.
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Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 2,509 out of more than 60,000 total participants in CAPS.
