Mindspeed will pay $27.5 million in cash and offer about 5.19 million new shares of its common stock -- which is approximately 15 percent of Mindspeed's outstanding shares -- that is worth $24.3 million based on the closing price of the company's stock on Jan. 4.
In addition, there is an earn-out provision whereby the purchase price can be increased by up to $25 million depending on whether certain milestones are met and which would be payable in the first calendar quarter of 2013.
Picochip has about 150 employees, all of whom will join Mindspeed following the acquisition.
The transaction is expected to close in the first quarter of 2012.
Why this matters
This latest M&A action shows that the mobile chipset is still hot at the beginning of 2012. (See MWC 2011: Betting on the Next Chip M&A Deal, Broadcom to Buy a 4G Strategy Via Beceem, Intel’s Infineon Acquisition: All About 3G and Broadcom to Buy Femto Chip Startup for $86M.) Picochip, which leads the market in 3G femtocell chipsets, had talked about going for an initial public offering (IPO) in 2012 and was the subject of M&A rumors throughout last year. (See What's picoChip's Exit Strategy? and PicoChip Bags $20M, Plans IPO.)
Now, Mindspeed appears to be a good home for the U.K.-based femto chip company. This acquisition brings together Picochip's 3G small-cell expertise and Mindspeed's LTE chipset capabilities for small cells, which will be important as demand increases for dual-mode 3G/4G small cells. The two companies already have some customers in common, including Alcatel-Lucent (NYSE: ALU), Cisco Systems Inc. (Nasdaq: CSCO) and Samsung Electronics Co. Ltd. (Korea: SEC) and have worked together on some designs.
However, the purchase price of $51.8 million for a company that has raised more than $100 million in venture capital funding looks low.
For more on Picochip, which was a finalist in Light Reading's private company of the year category, and Mindspeed, check out these stories:
- picoChip Raises $20M, Ships 1M Chips
- Challengers Shake Up LTE Chips
- Picochip Preps Base Station on a Dongle
- Mindspeed Records $2.2M Q4 Loss
- Startup Brews an LTE Small Cell Storm
— Michelle Donegan, European Editor, Light Reading Mobile