Silver Lake backs Avago's LSI purchase with $1b investment

Avago - a prior portfolio company of Silver Lake - has its joint headquarters in Singapore and the Silicon Valley in US and is listed on NASAQ stock exchange. Specializing in the design, development and global supply of a range of analog semiconductor devices, the company started life as the semiconductor products division of HP and later Agilent Technologies.

According to AVCJ research, the business was acquired by Silver Lake alongside KKR, GIC Private and Temasek Holdings in late 2005 in a deal worth $2.66 billion. The company then went public in 2009 in a $650 million IPO. Silver Lake, which exited the last of its stake to an undisclosed investor last year, had generated a 5x money multiple from its investment.

Avago will acquire NASDAQ-listed LSI - which designs semiconductors and software for storage and networking in datacenters and mobile networks  - for $11.15 per share in an all-cash transaction valued at $6.6 billion.

Avago intends to fund the transaction with $1 billion of cash from the combined balance sheet and fully-committed financing from a $4.6 billion term loan from a group of banks. The $1 billion investment from Silver Lake Partners is expected to be in the form of a seven year 2% convertible note with a conversion price of $48.04 per share or preferred stock with equivalent economic terms.

According to a release, the transaction is expected to create a highly diversified semiconductor market leader with around $5 billion in annual revenues by adding enterprise storage to Avago's existing wired infrastructure, wireless and industrial businesses. In addition, Avago hopes to achieve annual cost savings at a run rate of $200 million by the end of the fiscal year ending November 1, 2015, the first full fiscal year after closing.

"We are pleased to renew our highly successful partnership with Hock Tan (president and CEO of Avago) and the Avago management team," said Ken Hao, managing partner with Silver Lake, in a statement. "We believe this is a strategically compelling transaction that creates a tremendous opportunity in the enterprise storage and networking markets and will position Avago as one of the global leaders in the semiconductor industry."

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