Cirrus Buys Wolfson: A Lucrative Deal between Market Rivals

Cirrus Buys Wolfson: A Lucrative Deal between Market Rivals

American handset maker Cirrus Logic Inc is set to buy British company Wolfson Microelectronics Plc for around 291 million pounds. This is a sum of US $ 489 million. The positive reactions of the market to news of this acquisition are obvious. Shares of the British microchip company are up by around 73%. Wolfson is a firm based in Edinburgh which specialises in audio technology. Its recent acquisition came after it missed on a deal for manufacturing chips for a 4G version of the Samsung S4 smartphone.

This company is one of many recent overseas acquisitions of British technology firms. Autonomy was purchased by Hewlett-Packard. CGI bought Logica. Misys was acquired by US based Vista Equity Partners. Cirrus is a supplier for Apple Inc. As per the agreement, this US handset maker will pay 235 pence per share deal for Wolfson. New products such as Wolfson’s successful microphones are ideal for Cirrus which is looking to expand and strengthen its portfolio.

Together with Cirrus Logic, Wolfson wants to tap its immense potential. This British firm has 420 employees in 12 locations across the globe. Wolfson had also been experiencing business losses. It has incurred an underlying operation loss of $4.5 million which is considerable. Its previous year’s losses were around $ 2.8 million per year. The revenue of this company also fell from $48.1 million in 2013 to just $28.8 million this year.

Cirrus has also indicated that its offer has been backed by around 7% of the investors from Wolfson. The bid also provides a positive reflection of the potential for Wolfson to grow and channelize its technology for a wide number of services. Intellectual property is also an important part of the product portfolio and this is a crucial aspect of the deal between the two companies.

Shares in Wolfson had previously dropped to the lowest possible level in 2 years this February after the British microchip firm posted significant losses. The stock market value of Wolfson is now a stunning 270 million pounds following the deal. Cirrus believed it can help Wolfson to recover and grow. The deal will be finalized in the second half of 2014.

Wolfson adds a lot of innovation to Cirrus. Apart from audio innovation, it also adds a broad catalogue of audio products. It also has an impressive clientele which can add to the profit margins of Cirrus. This deal will add to the earnings per share for Cirrus. Wolfson has a lot of expertise in evolving semiconductor technology. Wolfson has a lot to recover from though. The pace of transition from 3G to 4G smartphones has been a reason why shares of this microchip company had fallen by 33% last year, according to many experts.

This Scottish firm has always been competing with a combination of negative factors. It reported flat revenue of $179 million and mounting losses of $13 million in 2013. Though its client list is impressive, Wolfson was relying on a few big customers like BlackBerry to tide it through the tough times. It was once seen as a leader among British technology firms with companies like Imagination and ARM alongside. But it came under a lot o pressure from American rivals such as Qualcom and of course, Cirrus itself.

The Scottish microchip firm was also blindsided by the pace at which 4G smartphones were adopted by consumers. This actually have an advantage to Qualcomm as it had developed an all-in-one 4G microchip. Cirrus is also looking to boost revenue by absorbing Wolfson. It wants to expand its core business as a leader in the audio signal processing components. This enhances Cirrus’s ability to emerge as a leader in its core fields and also add new product categories.

Technology is expanding at a frenetic rate now and companies that will not diversify or modify their products accordingly will become obsolete and face ruin. If they are talented, they can hope to attract buyers from among their rivals at best. But in the end, succeeding in the tech world involves matching or at least keeping somewhat of a pace with advances around us. As 4G is fast becoming a reality in many countries, companies now have to catch up with consumer preferences and advances in technology.