What's going on?

US chipmaker Microchip Technology said late last week that it would buy Microsemi, America�s biggest supplier of military and aerospace semiconductor equipment (making the sort of chips that help fly planes), in a $10 billion deal.

What does this mean?

Microchip makes chips that go into simple electronic devices (like video game controllers and smart watches); it�s buying Microsemi as part of an ongoing expansion into more complex fields. Microsemi is a perfect target, with an already sizable footprint in the aerospace and communications industry (where Microchip doesn�t do much business yet). Microchip expects to generate around $300 million of “synergies” (a.k.a. how the new company�s bottom line benefits from the combination) within three years of the acquisition.

Why should I care?

For markets: Micro-shares are on the up.

Microchip has agreed to pay around $68 a share for Microsemi, which values the company at a slight premium to its share price on Thursday. However, Microsemi�s stock was only in the mid-$50s a month ago before moving up in anticipation of a deal, so investors who�ve had the stock for a while are seeing a pretty fair return. Shares in Microchip jumped 3% last week, helping rebound from a downturn earlier this month when it reported weaker-than-expected earnings in its microcontroller business.

The bigger picture: Dealmaking activity in tech appears to be picking up.

This is especially true in the semiconductor industry, where big changes are already taking place. Even though growth in the personal computer market is stalling, the semiconductor industry enjoyed its biggest year ever in 2017, thanks in part to the growth of the Internet of Things. The proposed $117 billion acquisition of Qualcomm by Broadcom (alongside Qualcomm�s own bid for NXP) may just be the start: since mergers (ideally) allow newly formed companies to cut their costs and become more profitable, competitors may need to follow suit in order to keep their shareholders satisfied.