Marvell announced this morning its intention to acquire Innovium for $ 1.1 billion in an all-equity transaction. The startup, which has raised more than $ 400 million according to data from Crunchbase, is optimizing network Ethernet switches for the cloud.
Marvell President and CEO Matt Murphy sees Innovium as a companion piece to the $ 10 billion acquisition of Inphi last year, offering the company, which makes copper-based chips, more ways to work in modern cloud data centers.
“Innovium has established itself as a strong supplier of cloud data center switching switches with a proven platform, and we look forward to working with their talented team who have a strong track record in the industry for providing multiple generations of successful products. Marvell CEO Matt Murphy said in a statement.
Innovium founder and CEO Rajiv Khemani, who will remain as an advisor after the close, told a familiar story of a CEO of a startup being acquired, seeing the sale as a way to accelerate faster in part of an organization larger than it could on its own. “When we engaged with Marvell, it became clear that our data center-optimized portfolio, combined with Marvell’s scale, cutting-edge technology platform and complementary portfolio, can accelerate our growth and our vision of delivering revolutionary switching silicon for the cloud and the edge, ”he wrote in a company blog post announcing the deal.
The company, which was founded in 2014, raised more than $ 143 million last year on a post-currency valuation of $ 1.3 billion, according to data from Pitchbook. The question is, is this a reasonable deal for the company given this assessment?
No company wants to sell for less than it has been valued by its investors. In some cases, such transactions can still be profitable for the first funders of the selling business, but not always. In this case, TechCrunch is not aware of all the details of Innovium’s cap table and what its subsequent investors may have incorporated into their deals with the company in the form of downside protection; such measures may tip the value of the company’s sale more to its subsequent and end investors. This is usually managed to the detriment of its original funders and employees.
However, the Innovium deal should not be seen as a failure. Building a business that sells for over $ 1 billion in net worth is awesome. The deal appears to be slightly lower in terms of enterprise value. In the business world, enterprise value is a useful method of assessing the true cost of an acquisition. In the case of Innovium, a large cash position, which has been described as “Innovium’s expected cash and exercise income at closing of approximately $ 145 million”, reduced the cost of the transaction. transaction at a lower net expense of $ 955 million.
Our general view is that the sale is probably not the outcome that Innovium funders hoped for, but that it can still be lucrative for early workers and early investors, and it works. always at this lower number. It’s also noteworthy that in today’s market for oversized mega-towers and unicorns, an exit north of the billion dollar equity mark can be seen as a bummer in every way. Innovium sells for roughly the price Facebook paid for Instagram in 2012, a deal that at the time was so big it dominated tech headlines around the world.
But with so much capital available today, private valuations are skyrocketing and mega-deals abound. And recent rounds of funding north of $ 100 million, just like the Innovium era in 2020, with a round of $ 143 million, can set up companies with rich valuations and a narrow path ahead of them. to exceed these heightened expectations.
What probably happened? Maybe Innovium ended up with more money than opportunities to spend it; maybe she just needed an important partner to help her sell better in her market. With expected revenue of $ 150 million for Marvell’s 2023 fiscal year, its next fiscal year, Innovium has not failed to reach scale. It may just have grown up well as a private, independent business and stagnated after its last round.
Either way, a billion dollar exit is a billion dollar exit. The deal is expected to be finalized by the end of the year. Although both boards of directors have approved the deal, it still has to overcome regular closing hurdles, including the approval of Innovium’s private shareholders.