HgCapital Trust

Headquartered in The Netherlands, SiTel supplies integrated circuits and software for short-range wireless communications applications. A global leader in the cordless phone, gaming, broadband and headset markets, SiTel has a growing presence in Voice Over Internet Protocol (VoIP) telephony and Ultra Low Power (ULP) solutions for medical and home sensor networks.

SiTel was founded by a group of Philips engineers in 1994. The founding team had been together since 1987 and had demonstrated a strong track record of development and innovation. National Semiconductor, which had acquired the business in 1996, decided to sell the business in 2005 and HgCapital supported management in a bid to buy the business back. HgCapital acquired an 81% share of the business with the rest going to management.

SiTel is a supplier of short and medium range wireless semiconductors to Tier 1 cordless phone, broadband gateways, gaming and enterprise wireless headset customers, who included Panasonic, Uniden, Microsoft and Gigaset.

The business targeted sizeable niche markets where their technology was differentiated and where they were able to establish strong relative market share positions.

HgCapital immediately helped management establish an operational infrastructure to support continued growth in the business, including implementation of a resource planning system, supply chain, fabrication and procurement relationships that had previously been managed by the parent organization. HgCapital supported management’s increased R&D efforts to grow the existing product lines and to identify new growth opportunities.

• R&D spend increased from 15% to 20% during our ownership
• SiTel acquired personnel with radio frequency design expertise from Atmel
• The new product lines in VoIP and ULP, developed through internal R&D efforts, enabled the business to diversify its revenue base and positioned the company as a short-range wireless communications solution provider
   

SiTel overperformed in the early years. However, during our investment period, the Digital-Enhanced Cordless Telecoms (DECT) industry had consolidated around SiTel: DSP acquired NXP (Philips’ DECT business) and Infineon sold most of theirs to a private equity firm. This consolidation led to pricing pressure in their end markets. The work done in diversifying the product range allowed SiTel to refocus on short-range wireless communications and come through stronger.

In the Summer of 2010, HgCapital retained Mooreland Partners, a boutique advisory firm with specialized expertise in the global semiconductor market, to run a highly targeted sale process. Dialog Semiconductor, a power management semiconductor provider for portable devices, signed a letter of intent in November 2010 to acquire SiTel for an enterprise value of $86.5m and closed the transaction by February 2011.

The deal was a successful outcome for all parties involved as SiTel expands Dialog’s addressable market targeting high growth wireless portable devices and Dialog provides SiTel with an excellent platform to support the future growth of the business.