Dialog Semiconductor agreed to acquire Atmel, a US designer and manufacturer of microcontrollers that provide computing power for consumer and business hardware, for $4.6 billion.

The combined entity will have $2.7 billion in annual sales and will offer a “complete platform for IoT in terms of product portfolio”, Dialog CEO Jalal Bagherli said in a call.

Dialog sells chips that manage power in high-end smartphones, such as the iPhone. Bagherli said the deal will help Dialog become less dependent on a few smartphone makers and make it a major player in chips for connected cars, wearable devices and other IoT devices.

Atmel manufactures processors and other products targeting the wearables space, including smart watches and fitness bands, and has a market capitalisation of approximately $4 billion. About 70 per cent of its revenue is from microcontrollers.

Atmel first explored sale options after its long-term CEO Steve Laub said he would retire at the end of August, and its shares rose by 7.2 per cent amidst rumours of a possible sale.

Bagherli said Atmel has also developed technology to provide security for IoT applications.

The deal will result “in a fast growing and innovative powerhouse, supporting mobile power, IoT and automotive customers. The combined company will address a fast growing market opportunity of approximately $20 billion by 2019,” Dialog said in a statement, adding that it anticipates achieving projected annual cost savings of $150 million within two years.

The statement also said Dialog “will leverage Atmel’s established sales channels to significantly diversify its customer base” and “expects the combination will deliver an improved operating model and enable new revenue growth opportunities”.

The transaction is expected to close in the first quarter of calendar 2016 subject to approval from regulatory authorities and shareholders.

Companies similar to Atmel have proved attractive acquisition targets for larger players in the sector looking to enhance their capabilities around IoT, technology that allows devices, cars and watches to interact.

In May, semiconductor company Avago Technologies acquired rival Broadcom in a $37 billion deal.