Intersil Makes a Play for Video With Its Techwell Buyout

Last year was a period of recovery for Intersil (ISIL), which is a leading developer of high-performance analog and mixed-signal semiconductors. The company's fourth-quarter revenues shot up 36% to $131.1 million.

Riding on that momentum, Intersil is getting more active with its acquisitions. In December, the company purchased Rock Semiconductor, which develops power-management integrated circuits and has a strong presence in China.

And this week, Intersil struck another deal. It agreed to pay roughly $370 million for Techwell (TWLL) -- the price tag coming at a hefty 49% premium. To finance the deal, Intersil's financial adviser, Morgan Stanley (MS), has agreed to provide $390 million in financing. This will be a bridge to an eventual issuance of notes.

Industrial-Strength Deal

Founded in 1997, Techwell is a "fabless" semiconductor company (that is, it doesn't make the chips it designs) with 200 employees across California, South Korea, Japan, Taiwan and China. The company went public in June 2006.

Techwell develops mixed-signal video products for security surveillance and automotive infotainment industries. The underlying technologies allow for digital video-processing for the display, storage and transport of video content. Some of the applications include industrial DVRs, multiplexers, automotive front consoles, rearview mirrors and so on.

For both the industrial and automotive infotainment categories, the growth rates are expected to run 20% per year. Essentially, there is a major shift to video technologies, and Techwell is one of the clear leaders. For 2010, the company expects to post $88 million in revenues and have gross margins of 66%. Last year, revenues came to $63.2 million, with gross margins of 61%.

In other words, Techwell should represent a nice boost for Intersil, which expects the transaction to be accretive to earnings-per-share this year (when excluding transaction costs). Keep in mind that Intersil has the stretch goal of reaching $1 billion in revenues by the end of 2011. With the Techwell deal, Intersil is roughly at the $500 million point.

So, it's a good bet that Intersil is looking at other deals as well. And given the financing commitment from Morgan Stanley, it looks like the company should have the resources to pursue this aggressive strategy.