It was a real surprise to see the acquisition of Icera by Nvidia earlier this week.

- One, for some reason I always had Icera and Picochip as two possible UK contenders for an IPO rather than a sale.

- Two, Nvidia. Yes, they are both focused on the mobile and tablet market but two very different segments of the value chain.

- Three, $367 million for a company which has had about $250 million invested in it by VCs since 2002. Good returns, not blockbuster.

So, let’s look at each of these points:

IPO scenario: We have looked at the IPO scenario on the FTSE in a previous post. 2009 saw an overall outperformance by listing IPOs. However in 2010 valuations trended downwards prior to IPOs for a risk-wary market. Economic outlook both for country and market as well as company forecasts were being looked at askance. In fact, IPOs in London were actually at third place after the US and Hong Kong stock markets. Not the ideal scenario for a high revenue generating but not necessarily as profitable a business; or for one still needing huge funds to meet their R&D requirements.

Why Nvidia: Nvidia has been focused on the entertainment element (i.e. graphics, image processing, computing) of PC, tablet, mobile devices, PMPs, navigation devices etc. In their own words ‘ Our business strategy leverages our ability to design and develop programmable GPUs, system I/O processors, system-on-chip processors, application programming interfaces for multiple operating systems, and application programming tools and middle-ware to provide our customers with platforms that allow superior performance and utility beyond the base capability’.

The Icera acquisition is in keeping with their focus on the development of low power mobile system-on-chip products. However it is a huge step marking an entry into the communication end of the chain.

Icera provides low power baseband solutions for the mobile segment i.e. the entire modem implemented in software on a single core processor. In effect, it is a software defined multimode receiver for 2G/ 3G/ LTE.

So the commonality – mobile focused and software defined.

As the two companies put it, the acquisition brings together the two main processors in any smartphone – the application processor and the baseband processor. One would expect this to deliver faster development of the next generation of mobile computing products.

It wouldn’t be all that surprising if Intel woke up one morning and decided to acquire Arm or Imagination Technologies. However the transaction came as a bit of a surprise because nVidia seemed very happy to continue focusing on their niche in various discussions with the firm. Still – a smart decision. Their stock had been taking a bit of a hammering in recent times.

Pricing: Lets take a look at the investors in Icera – an absolute rollcall – Accel Partners, Amadeus Capital Partners, Atlas Venture, Balderton Capital, DFJ Esprit. Debt financing was provided by ETV Capital and MMV Financial Inc and then by SVB in 2011.

Investments have been made since 2002 but in more recent times, Icera raised $45 million from the VCs in 2010 and then a further $10 million from SVB in 2011. Not particularly self sustaining, was it? And then if you look at the VCs - Amadeus, not sure when they last raised a fund and well, there is a limit to the depth of VC pockets. Atlas Ventures has long since packed their bags and moved to the US. DFJ’s presence may have to do with their acquisition of the 3i VC portfolio though they did invest out of their own fund last year, to keep a hand in I suppose. That leaves Accel and Balderton with relatively recently raised new money.

In 2010, Icera was talking about an IPO at a market cap of £618 million ($1 billion). But considering the state of markets, perhaps, even Accel and Balderton’s patience ran out.

And so we have an acquisition for $367 million. No, not stellar by any means. How can you not help but wonder if the story would have been different across the pond.....