Chipset company Broadcom announced a $18.9 billion cash deal to buy US business software company CA Technologies.
Four months ago, US President Donald Trump blocked Broadcom’s $117 billion bid for semiconductor giant Qualcomm, saying it posed a serious threat to U.S. national security and gave an edge to Chinese companies in the wireless space.
Since then, Broadcom has re-domiciled from Singapore to US, placing it outside the purview of the Committee on Foreign Investment in the United States (CFIUS), the government panel that reviews deals for potential national security risks.
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Broadcom’s chip market share grew from 4 percent in 2013 to a 30 percent share this year as Broadcom CEO Hock Tan spearheaded acquisitions with backing from private equity firm Silver Lake, Reuters reported.
“With its sizeable installed base of customers, CA is uniquely positioned across the growing and fragmented infrastructure software market, and its mainframe and enterprise software franchises will add to our portfolio of mission critical technology businesses,” Hock Tan said in a statement.
Chips of Broadcom, headquartered in San Jose, CA, power smartphones, computers and networking equipment. CA specializes in software for mainframes, big servers that companies are replacing with cloud computing.
Broadcom will benefit primarily from CA’s recurring revenue, rather than operational synergies.
The deal will drive Broadcom’s long-term Adjusted EBITDA margins above 55 percent. CA-Broadcom combined entity will have last twelve months non-GAAP revenues of $23.9 billion and Adjusted EBITDA of $11.6 billion.
Broadcom CFO Tom Krause has defended the deal’s rationale, pointing to experience the company already has beyond chips, in selling networking gear to big businesses operating data centers.
Last year, Broadcom acquired networking gear company Brocade Communications Systems for $5.5 billion. Brocade’s networking gear often connects to mainframes provided by IBM, and those are the same mainframes that much of CA’s software caters to, Krause said.
CA’s largest shareholders, Careal Property Group and affiliates, which own 25 percent of the outstanding shares of CA, have agreed to vote for the deal.
Broadcom’s main semiconductor business is becoming more competitive as major customers such as Apple and Samsung Electronics look to consolidate supplier relationships and slash costs.
Bank of America and Deutsche Bank advised Broadcom, and Qatalyst Partners advised CA Technologies.