Materials M&A Mania

The electronics materials business has seen a wave of mergers and acquisitions in recent times.

Clearly, it’s important to keep tabs on this industry. Vendors in the electronics materials business are critical to the supply chain—they provide the key gases, materials and other products for various industries, such as display, MEMS, packaging, semiconductor and others.

But it takes a scorecard to keep track of the business. Take Versum for example. In 2016, Air Products spun off its electronic materials division into a new company called Versum.

Recently, Entegris announced plans to acquire Versum. Then, Merck KGaA, based in Darmstadt, Germany, recently made a competing bid to acquire Versum. Right now, Entegris has the inside track, but nothing has been finalized here.

Here are some other notable mega deals:

• In 2017, Linde and Praxair announced plans to merge. The deal, which was recently finalized, creates a giant vendor in the specialty gas and other arenas.
• Last year, Cabot Microelectronics, a supplier of chemical mechanical planarization (CMP) polishing slurries, pads and other products, acquired KMG Chemicals, a provider of specialty chemicals and performance materials.
• DowDuPont was formed after the merger of Dow Chemical and DuPont in 2017. Now, DowDuPont is spinning off its materials science unit into a new company called Dow. This does not include Dow’s Electronic Materials business.

This is just the tip of the iceberg. So why is this happening?

For one thing, the semiconductor industry is maturing. Then, at each node, there are fewer companies playing at the leading edge due to soaring IC design and manufacturing costs. This in turn has caused a wave of consolidation in the semiconductor equipment business over the years.

This is not to say the IC market has lost its luster. On the contrary, the semiconductor business is more interesting than ever, thanks to the surge in AI, automotive, medical, robotics and other apps.

Still, there are other factors driving the M&A activity in electronics materials. “I believe the materials segment, particularly those serving technology (such as semis) remains somewhat fragmented. Many leading players are part of larger diversified chemicals/materials companies with divisions, such as DowDupont, Merck KGaA, Air Liquide and others,” said Patrick Ho, senior research analyst at Stifel Nicolaus. “This is why we have seen Air Products spin out Versum. DowDupont is about to do the same with Dupont. Entegris purchased ATMI. It is a marketplace that needs some level of consolidation and a break from the management by these diversified chemical companies (who may not understand the requirements of semiconductor companies).”

So, what about the latest deal between Entegris and Versum? And how will Merck KGaA’s competing bid play out? “Long term, there is a greater ‘value creation’ in the Entegris-Versum combination than if Merck KGaA adds it to its electronics materials portfolio,” Ho said.

But why the sudden interest in Versum? “I would not say Versum is ‘suddenly’ interesting. There was great interest when this business was spun out of Air Products a few years ago, as they became the largest and most diversified materials public company serving the semiconductor industry,” Ho said. “Its attractiveness is in its broad portfolio of advanced materials that have benefited from the industry’s shift to 3D NAND and new materials required in many new patterning and interconnect steps, such as those like Intel’s use of cobalt materials in interconnects.

“The interest in Versum from a M&A perspective is due to its strong materials science technology, product portfolio and strong customer relations. That would enhance any prospective buyer’s portfolio and relationships. This merger/acquisition battle has just put a brighter light on Versum and the capabilities it can provide,” he added.

The M&A activity in the electronics materials business is about to get more interesting. Get ready for a wild ride.