M&A Alert: Intel Acquisition of Wind River

Transaction Overview

Today Intel announced an agreement to acquire Wind River.  Wind River provides operating system and supporting software products for embedded computing applications.  The embedded computing market encompasses hundreds of thousands of products from automotive sensors to airplane electronics to medical devices to dishwashers.  Wind River has clients across a broad array of industries including aerospace and defense, automotive, consumer, medical, industrial and communications.  Wind River is most well know historically for their VxWorks real time operating systems (RTOS) which is something equivalent to the Windows operating system of the embedded world.  In recent years, Wind River began to play defense against the open source threat by introducing their own version of Linux operating system optimized for embedded computing applications.

Architect Partners Observations

This is a watershed transaction.  Intel's move signals a very material shift in its strategy as well as shines a bright light on the very large opportunity for embedded computing.

This move strongly signals Intel's view that the growth opportunities in markets such as mobile phones are crucial to its future.  This is a marked shift from its historical focus on PC's, laptops and servers.  The embedded market is one where the semiconductor chips are closely tuned for the device and application and tight integration with the operating system is essential.  Ownership of Wind River will allow Intel to provide a bundled and closely integrated solution to its embedded clients.  Don't be surprised if this forces the hand of other semiconductor vendors to attempt to establish similar in house capability.  We also would not be surprised to see another bidder comes out of the woodwork.  In fact, the stock price closed today above Intel's offer, suggesting that investors feel the same way.

Transaction Parameters

Enterprise Value:                                                                                $786mm
Offer Premium to Previous Day Stock Price:                                                44%

Valuation Multiples:
    Enterprise Value / LTM Revenue                                                             2.2x
    Enterprise Value / LTM EBITDA                                                              21.7x
    Price / LTM Earnings                                                                            82.3x