On October 16, Ryoyo Electro (Ryoyo Electronics) and Ryosan, two Japanese chip distribution companies that are in the process of business integration, announced that they will form a joint holding company, Ryosan Ryoyo Holdings (HD), on April 1, 2024. After the merger, the two companies aim to achieve group sales of 500 billion yen and operating profit of 30 billion yen in the 2029 fiscal year.

Another chip distributor reorganization merger in the chip industry, what will be the impact of the merger of the two companies?

01

Set up several outlets in China

Ryosan Ryoyo HD will become the wholly-owned parent company of Ryoyo Electro and Ryosan through the equity transfer. The head office will be located in Chuo-ku, Tokyo, with Ryosan Ryoyo Electro President Moritaka Nakamura as President and Ryosan President Kazuhiko Inaba as Vice President. The share transfer ratio is Ryosan 1.32: Ryoyo Electro 1. Both companies will be delisted on March 28, 2024, and Ryosan Ryoyo HD will be listed on the Tokyo Prime Market on April 1, 2024.

Founded in 1953 by Morifuji, Ryosan sells semiconductors, electronic parts, and electronic devices, and provides solutions. Headquartered in Tokyo, it has about 50 sales outlets around the world. In addition to Japan, Ryosan has set up overseas outlets in Asia, North America and Europe, as well as several offices in Shanghai, Hong Kong and Taiwan, China.

According to Ryosan's website, its suppliers include Renesas Electronics, ON Semiconductor, Chip Technology, ON Semiconductor, Huabang Electronics, Wanghong Electronics, Creative, Chihara Technology, Everspin Technologies, YAMAHA Corporation. According to the "Top 50 Revenue Ranking of Global Electronic Component Distributors in 2022" released by the "International Electronic Business Situation", Ryosan ranked 19th.

After the merger, the two companies will be on par with Macnica Holdings (HD), Kaga Electronics (Kaga Electronics) and Lester HD.

02

Alliance between giants

Chip distribution is in danger

In May 2023, Ryoyo Electro and Ryosan announced that they had signed a basic agreement for business integration. The context is that with the acceleration of the Internet of Things (IoT) and digital transformation (DX), the rapid adoption of new technologies has brought significant environmental changes to the industry, and the functions and roles required by e-trading companies are changing, including the impact of increased competition among trading companies, and geopolitical risks associated with mergers and acquisitions of semiconductor manufacturers and other manufacturers.

The combination of the two companies will bring good synergies, Ryosan has many customers in the automotive sector, while Ryoyo Electro has many customers in the medical sector, and the merger will integrate and expand the customer base of both companies.

On February 7, 2023, Ryoyo Electro announced that it would acquire 18.71% of the outstanding shares of the same industry company Ryosan for 15.7 billion yen, becoming its largest shareholder. Regarding Ryoyo Electro's acquisition of shares in Ryosan, although both companies reacted with surprise internally, Ryoyo Electro and Ryosan will continue to integrate in the spirit of equality in order to achieve the long-term goals of both companies, "We are currently considering the face of the company after the business combination."

In addition, mergers and acquisitions on the part of chip manufacturers may also be an important reason for the restructuring of Japanese chip distribution companies. Renesas acquired Intersil in 2005 and IDT in 2007. Since 2008, distribution agreements between Renesas and semiconductor trading companies have been terminated. The most recent was the termination of the distribution agreement with RYODEN Corporation (formerly Ryoden Shoji Corporation) at the end of February 2011.

In short, under the background of no fundamental change in the power relationship between chip distributors and chip original factories, chip manufacturers are paying more and more attention to direct sales, and many distributors have lost their agency, which is all about the survival and death of distributors, and mergers and acquisitions have become one of the survival choices of semiconductor distribution companies. The integration of Ryoyo Electro and Ryosan could accelerate industry restructuring and reshuffling.