U.S. private equity firm Texas Pacific Group is expected to bid for Singapore's microchip-testing firm United Test and Assembly Center as part of a consortium, banking sources said on Tuesday.
The deal may be worth as much as S$1.8 billion ($1.2 billion), dealers and analysts said, and another sign of consolidation in Singapore's technology sector which is under pressure to compete with rivals in China and Taiwan.
China is seen as a cheaper manufacturing base while Taiwanese manufacturers have a depth of business integration that gives their customers a wider range of services, analysts say.
Technology companies have also come on the radar screen of private equity firms such as Texas Pacific and Kohlberg Kravis Roberts & Co. (KKR) as they scour the region for undervalued firms.
The technology sector is being targeted by private equity firms because the sector is undervalued while companies have continued to show capex discipline and good cash flow, said Khoo Chen Hsung, an analyst at CIMB-GK Securities.
Singapore is just a part of that consolidation trend.
He said UTAC is trading at 1.5 times its book value, compared to the Straits Times Index's 2 times, while its rival STATS ChipPAC is valued at 1.7 times.
UTAC's stock price has soared 18 percent in the past three months. Trading in the shares was suspended on Monday amid intense speculation that UTAC may receive a takeover offer.
Texas is part of a consortium, said a source close to the deal. Banking sources said a deal could be announced within the next couple of days.
Dealers and analysts said the indicative price range for the offer could be between S$1.10 to S$1.20 per share, valuing the firm at as much as S$1.8 billion. UTAC's share price closed at S$1.08 on Friday.
UTAC has manufacturing facilities in Singapore, Shanghai, Taiwan and Thailand, according to its Web site, and has about 9,000 employees. UTAC declined to comment earlier.
The stock, which hit its highest level in more than a year last week, has risen about 48 percent so far this year, following several mergers and acquisitions in the technology sector.
Singapore state investor Temasek in March bid as much as $1.6 billion for STATS ChipPAC, the world's fourth-largest microchip tester and packager, while U.S. buyout firm Kohlberg Kravis Roberts & Co. (KKR) bought electronics components maker MMI Holdings for $664 million in April.
In July last year Singapore contract electronics maker Venture Corp. bought retail transactions systems maker GES International for S$980 million.
UTAC -- which competes with Singapore-based STATS ChipPAC Ltd., Taiwan's Advanced Semiconductor Engineering Inc. and Siliconware Precision Industries Co. Ltd. -- packages microchips by building frames around them to protect them from damage and tests them to ensure functionality.
Its clients include Taiwan Semiconductor Manufacturing Co. Ltd., the world's largest supplier of built-to-order chips, and South Korea's Hynix Semiconductor Inc.
It also sells to Nanya Technology Corp., Taiwan's second-largest memory chip maker and Germany's Infineon Technologies AG, Europe's biggest chip maker.
($1=1.537 Singapore Dollar)
(Additional reporting by Wee Sui Lee)