The glitterati of the semiconductor industry have turned out to be right and the glitterati of the private equity industry have turned out to be wrong about the swoop on the semiconductor industry by the private equity industry back in 2006.
"If you have a downcycle in the semiconductor industry, these investments are going to look very foolish,” said Xilinx CEO Wim Roelandts back in 2006.
Now KKR has re-valued its stake in NXP at 25 per cent lower than the $11.6 billion valuation it put on the company when it led a buyout in 2006 with KKR co-founder Henry Kravis bemoaning a changed economic environment. "Capital is not nearly as plentiful as it was a year ago and the cost is much higher," said Kravis.
So Roelandts, who knows the chip business through and through, was right, and Kravis, who doesn’t, wasn’t.
"NXP has underperformed versus our expectations due to overall softness in the semiconductor business,'' said KKR exec Paul Raether.
It turns out that bonds sold by KKR and its partners to fund the buyout of NXP are trading at 74c on the $.
It makes you wonder by how much Blackstone must have marked down the value of its semiconductor investment in Freescale, also made in 2006.
Because Blackstone’s valuation of Freescale, a company about the same size as NXP, was $17.6 billion when Blackstone bought it, and since then it has been trading way down on 2006 levels.
As Roelandts pointed out eighteen months ago: "These investments are going to look very foolish."
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