In December, several major semiconductor mergers and acquisitions (M&A) deals were abruptly terminated, including the proposed merger between domestic computing power leader Dawning Information Industry Co.,Ltd. (603019.SH) and Hygon Information Technology Co.,Ltd. (688041.SH), as well as Verisilicon Microelectronics(Shanghai)Co.,Ltd.'s (688521.SH) planned acquisition of RISC-V unicorn Xinlai Zhirong.
The former deal, which aimed for deep integration through a share swap, was called off, while the latter was abandoned due to unmet expectations on key terms. Additionally, semiconductor firms like 3Peak Incorporated (688536.SH) and Dioo Microcircuits (688381.SH) also announced the termination of their M&A plans this month.
**Valuation Inversion and Regulatory Scrutiny as Key Factors** The sudden halt in semiconductor M&A deals this month can be attributed to valuation discrepancies and tightening regulatory oversight. Companies cited varying reasons, from "changing market conditions" to "failure to agree on core terms."
For Hygon’s terminated merger with Dawning, Hygon’s director and general manager Sha Chaoqun explained that since the deal was announced in June, both companies’ stock prices had surged by over 60% by mid-August, driven by shifts in domestic and international conditions, overall A-market trends, and AI industry hype. This volatility complicated the share-swap arrangement. Moreover, the deal involved multiple stakeholders, including Chengdu’s state-owned assets, employee stock ownership platforms, and market investors, making consensus difficult.
Verisilicon’s failed acquisition of Xinlai Zhirong highlights another common issue: valuation clashes between listed and unlisted firms. Xinlai, a RISC-V CPU IP provider founded in 2018, reportedly had disagreements with Verisilicon over pricing. Verisilicon’s founder and chairman, Dai Weimin, noted that while semiconductor startup valuations have dipped due to slowed IPO activity—making acquisitions opportune—sellers’ high expectations often derail deals.
**Regulatory and Market Pressures** Recent policy shifts, including 2024’s "M&A Six Guidelines" and "STAR Market Eight Rules," encourage acquisitions of unprofitable hard-tech firms and cross-industry consolidation. While this spurred a wave of semiconductor M&A, the surge in deal announcements also led to more terminations.
Additionally, past exuberance in primary markets inflated valuations, leaving many targets with complex shareholder structures and divergent exit expectations. Meanwhile, fluctuating industry cycles—from rapid growth in late 2023 to slowing demand in some segments this year—have made listed companies wary of overpaying.
Regulators are also scrutinizing semiconductor deals more closely, particularly cross-sector acquisitions. For instance, landscape firm Yuanlin Ecology’s (605303.SH) 112 million yuan investment in Hangzhou HC Semitek was swiftly questioned by the Shanghai Stock Exchange over valuation and insider trading concerns.
**M&A Remains a Strategic Priority** Despite setbacks, semiconductor firms continue pursuing M&A for growth. Verisilicon, after dropping Xinlai, pivoted to acquiring Pixelworks’ China subsidiary, Pudong Semiconductor, to bolster its visual processing capabilities for AI devices.
Dai Weimin emphasized that strategic acquisitions should aim for synergies, suggesting tiered pricing and earn-out structures to bridge valuation gaps. Industry leaders like NanoXplore’s Wang Shengyang argue that consolidation is essential for China’s fragmented analog chip sector to compete globally.
In summary, while valuation mismatches and regulatory hurdles have slowed semiconductor M&A, the sector’s long-term consolidation trend remains intact, driven by the need for scale and technological integration.
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