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Texas Instruments, the second largest US chipmaker, on Monday announced the sale of its Sensors & Controls business to Bain Capital, the private equity company, for $3bn in cash.
The move was not unexpected – analysts have described S&C as lower-growth and non-core, while private equity has been growing more interested in tech businesses that generate strong, steady cash flow.
S&C, acquired by TI in 1959, has about 5,400 employees and achieved $1.1bn in 2004 sales of its sensors and thermostats that monitor systems in household appliances, cars, trucks and aircraft and pressure levels in air conditioners. This represents about 8 per cent of TI’s total revenues and the division has been growing at about 7 per cent a year over the past three years, compared with 17 per cent for TI as a whole.
Kevin March, TI chief financial officer, told the FT it seemed an appropriate time to sell the division with profitability of TI’s semiconductors overtaking that of S&C in the third quarter. “This lets us focus on growth and unlocks value for S&C, which won’t have to compete for resources within TI any more.”
TI said it had no immediate plans for the cash generated.
The acquisition of S&C is the latest in a string of private equity deals in the tech industry.
Among the large US private equity firms, Bain has been among the most aggressive in pursuing such deals. In 2004, it participated in the $2bn purchase of Electronic Data Systems’ UGS-PLM software unit, which is now gearing up for an initial public offering.
Last year, Bain was one of seven firms that acquired SunGard Data Systems for $11.3bn, the largest ever technology buy-out.
Bain is also considering buying Affiliated Computer Services for about $8bn, alongside Blackstone and Texas Pacific Group, in a deal that is expected to be announced in the coming days, according to people familiar with the matter.
Steve Zide, a managing director at Bain, told the FT: “The financing markets have been very receptive to tech transactions, also, thanks to the positive outlook that investors have about tech businesses as a whole.”
Bain will be writing a cheque worth $1bn in the deal, with the remaining $2bn being financed through debt. The purchase price values S&C at 10-11 times ebitda – higher than most analysts were expecting.
JPMorgan Chase advised Bain. TI, which ran an auction to sell the business, was advised by Morgan Stanley.