M&A Alert - April 28, 2010
HP Buys Palm
Transaction Overview
On April 28th 2010, HP (NYSE: HPQ) agreed to acquire Palm (NASDAQ: PALM) for approximately $1.2b in cash.
Target Description
Palm is the maker of mobile handset devices such as Palm Pre, Pixi, Treo and Centro as well as mobile operating software “WebOS”, which enables multitasking capabilities and mobile visual search. Palm has 452 patents and another 406 applications on file. According to IDC, Palm accounts for about 5% of smartphone sales in the U.S. Palm has received $425mm in total funding from Elevation Partners (Fred Anderson, Rajiv Dutta), of which $100mm funding occurred in December 2008 and $325mm funding occurred in June 2007. Jon Rubinstein, Palm’s CEO, who was previously an Apple executive, is expected to lead HP’s mobile handset efforts after the acquisition.
Buyer Description
HP is the world’s largest maker of computers including laptops, tablet devices and computer desktops. HP started selling the smartphone version of its iPaq handheld computer devices (targeted for business consumers) in 2007. HP has historically used Microsoft’s Windows operating system software (“OS”) in its computer and handheld devices. Todd Bradley, executive vice president, Personal Systems Group, (who joined HP in 2005 after serving in Palm’s executive management), was the key executive sponsor of the transaction. HP was founded in 1939 and is headquartered in Palo Alto, California.
Transaction Parameters
HP will pay approximately $1.2b using cash off its balance sheet.
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| Enterprise Value (1) | $1.2b |
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| Purchase Price Multiples: | |
| LTM Revenue(2) | 1.1x |
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| Premium Paid: | |
| 1 day prior to announcement | 23% |
| 30 day prior to announcement | 47% |
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1) Represents enterprise value, factoring in Palm’s $592mm of cash and $391mm of debt as of 2/28/2010
2) LTM revenue as of 2/28/2010 is $1.1b. LTM EBITDA and Net Income Multiples are NM as Palm isn’t profitable.
Dell, Lenovo, ZTE, Huawei and HTC had reportedly shown interest when Palm started seeking bids two weeks ago.
Other reasonably comparable transactions include:
| Date | Acquirer/Target | TTM Rev Multiple |
| June ’09 | Intel/Windriver (embedded device OS) | 2.2x |
| June ’08 | Nokia/Symbian (mobile device OS) | NA |
| Feb ’08 | Microsoft/Danger (mobile device OS) | 12.4x |
| March ’06 | Dell/Alienware (computer hardware) | NA |
| July ’05 | Google/Android (mobile device OS) | NM |
| December ’04 | Lenovo/IBM’s PC Business (computer hardware) | 0.1x |
| September ’01 | HP/Compaq (computer hardware) | 0.7x |
Strategic Rationale
HP has transparently announced its intent to invest in Palm’s webOS platform in order to expand into the mobile devices market which includes smartphone, netbooks and other tablet devices.
Architect Partners’ Observations
HP has a strong PC and laptop business which it hopes to leverage in the mobile device market This illustrates that the “computer” is no longer just one device. Multiple mobile handheld devices such as smartphones, e-readers, music players, and netbooks are a natural extension of and require a tight integration with the world of PCs and laptops.