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Thread: Broadcom acquires CA Tech

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    Broadcom acquires CA Tech

    Dearest experts,

    Broadcom have acquired CA Tech Inc for USD 19 bil

    Can anyone here see any angle from which this could actually have strategic value for a semiconductor company - or is it just what it seems to be: which is to say, financial engineering. May be Tan is planning to give that pay check another boost.

    The Register called it the weirdest acquisition ever; I'm inclined to agree. Apart from maybe HP Autonomy

    Weirdest. Acquisition. Ever. Broadcom buys CA Technologies • The Register

    MooseGoose

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    Last edited by Daniel Nenni; 07-12-2018 at 10:32 AM.
     

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    Hock Tan is desperate to find new acquisitions to feed growth, like a vampire needs blood. The market reaction speaks to the fear that his game of musical chairs is nearing its end. His failed effort to buy Qualcomm represents both the peak and trough of his run.

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    This acquisition reminds me of when Intel purchased McAfee, only to later spin them out again. Where there is no synergy of products or common customers, then mergers make little sense.

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    Bit of a headscratcher for me as well. There may not be many semi companies left to acquire between what's left on the market and antitrust/trade issues. AVGO has growth needs that are going to be hard to achieve organically but this is certainly a risk to Hock Tan's strategy. Will be interesting to see how it plays out.

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    For what its worth, this is what the markets think :

    Broadcom acquires CA Tech-avgo.jpg

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    Quote Originally Posted by MooseGoose View Post
    Dearest experts,

    Broadcom have acquired CA Tech Inc for USD 19 bil

    Can anyone here see any angle from which this could actually have strategic value for a semiconductor company - or is it just what it seems to be: which is to say, financial engineering. May be Tan is planning to give that pay check another boost.

    The Register called it the weirdest acquisition ever; I'm inclined to agree. Apart from maybe HP Autonomy

    Weirdest. Acquisition. Ever. Broadcom buys CA Technologies The Register

    MooseGoose
    Intriguing. I like it because nobody would have imagined it. I would like to think Hock has some disruptive master plan for this acquisition but more than likely he is just going to slash expenses and milk this cow until it dies. Definitely one to watch.

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    Quote Originally Posted by Daniel Nenni View Post
    Intriguing. I like it because nobody would have imagined it. I would like to think Hock has some disruptive master plan for this acquisition but more than likely he is just going to slash expenses and milk this cow until it dies. Definitely one to watch.
    The premium paid makes this look like more of a strategic acquisition. I have two guesses. One is that Broadcom is going to start a new platform in vertical market software, similar to Constellation Software, and the other is that, as software and managed IT infrastructure company, CA Tech might be used as a sales channel for products in Broadcom's portfolio.

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    Also, as per the selloff today, the magnitude does not make sense. It could be that some major PE investors who are also active in the VMS market selling due to new conflicts of interest.

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    I agree Count, it does seem a little drastic; even if this were a completely cynical acquisition for financial engineering purposes, there is still significant "value" in broadcom - arguably it was under-priced prior to the acquisition

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    I should say, I've seen an interview/note with the CFO (Krause) in which he says that CA Tech is the first step in a strategic shift which will see Broadcom attempt to replicate the business model of acquire and consolidate in the infrastructure software area.

    I guess that's the angle I'm looking for; the question is whether is feasible/sensible

    Thoughts?

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    Quote Originally Posted by MooseGoose View Post
    I should say, I've seen an interview/note with the CFO (Krause) in which he says that CA Tech is the first step in a strategic shift which will see Broadcom attempt to replicate the business model of acquire and consolidate in the infrastructure software area.

    I guess that's the angle I'm looking for; the question is whether is feasible/sensible

    Thoughts?
    More I think about it the less I'm a fan of the change in direction. It indicates that Broadcom is running out of targets in the semi space, at least targets that are big enough to move the needle. There are lots of targets in the VMS space, but they tend to be much smaller, as the VMS market is much more fragmented and picking the right ones requires a ton of domain experience the the verticals you are entering. So Hock Tan will be faced with two new challanges - finding software targets that are big enough to move the needle, and making sure those assets are indeed the sort of franchise assets that make sense for a VMS rollup. There is also much more competition in rolling up VMS companies than semiconductors. Broadcom was really the only company out there that was applying the private equity platform model to semiconductors, where there are several in VMS software. Better as an investor to just buy Constellation Software.

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    Quote Originally Posted by count View Post
    More I think about it the less I'm a fan of the change in direction. It indicates that Broadcom is running out of targets in the semi space, at least targets that are big enough to move the needle. There are lots of targets in the VMS space, but they tend to be much smaller, as the VMS market is much more fragmented and picking the right ones requires a ton of domain experience the the verticals you are entering. So Hock Tan will be faced with two new challanges - finding software targets that are big enough to move the needle, and making sure those assets are indeed the sort of franchise assets that make sense for a VMS rollup. There is also much more competition in rolling up VMS companies than semiconductors. Broadcom was really the only company out there that was applying the private equity platform model to semiconductors, where there are several in VMS software. Better as an investor to just buy Constellation Software.
    Is there are conference call scheduled for this? Hock has some explaining to do. My friends on Wall Street are not happy with this acquisition at all and I have no answers for them.

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    Broadcom announced its intention to acquire CA Technologies for $18.9 billion, a premium of approximately 20% to the closing price of CA common stock on July 11, 2018.

    Although many analysts claim this acquisition to be unrelated and Broadcom's stock has tanked nearly 15% since the announcement, this appears to be a very strategic acquisition well ahead of its time.

    Why has Broadcom invested in CA Technologies?

    As indicated by McKinsey in October 2015, Internet of Things could generate $4 trillion to $11 trillion in value globally in 2025 and Value creation will stem from the hardware, software, services, and integration activities provided by the technology companies that enable the Internet of Things.

    To unlock growth semiconductor companies should elevate the value chain by incorporating
    system integration and enterprise applications as shown below.

    Broadcom acquires CA Tech-broadcom-ca-tech-acquisition-strategy.jpg

    With the acquisition of CA Technologies, that offers software development infrastructure, testing, validation, security and collaborative capabilities, Broadcom is gearing up to elevate its value chain into software/algorithms, server infrastructure and end-user applications on the cloud and/or mainframes. It is also able to offer system integration capabilities by providing the system or application-level software supporting integrated circuits, which are key requirements in ASIC (Application Specific Integrated Chips) development.
    Attached Thumbnails Attached Thumbnails Broadcom acquires CA Tech-broadcom-ca-tech-acquisition-strategy.jpg  

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    Great post, thank you. It is interesting to note that the first thing Hock did after acquiring Broadcom is sell the IoT chip group to Cypress where it is flourishing. Maybe he needed the cash ($550M).

    Quote Originally Posted by aashishwat View Post
    Broadcom announced its intention to acquire CA Technologies for $18.9 billion, a premium of approximately 20% to the closing price of CA common stock on July 11, 2018.

    Although many analysts claim this acquisition to be unrelated and Broadcom's stock has tanked nearly 15% since the announcement, this appears to be a very strategic acquisition well ahead of its time.

    Why has Broadcom invested in CA Technologies?

    As indicated by McKinsey in October 2015, Internet of Things could generate $4 trillion to $11 trillion in value globally in 2025 and Value creation will stem from the hardware, software, services, and integration activities provided by the technology companies that enable the Internet of Things.

    To unlock growth semiconductor companies should elevate the value chain by incorporating
    system integration and enterprise applications as shown below.

    Broadcom acquires CA Tech-broadcom-ca-tech-acquisition-strategy.jpg

    With the acquisition of CA Technologies, that offers software development infrastructure, testing, validation, security and collaborative capabilities, Broadcom is gearing up to elevate its value chain into software/algorithms, server infrastructure and end-user applications on the cloud and/or mainframes. It is also able to offer system integration capabilities by providing the system or application-level software supporting integrated circuits, which are key requirements in ASIC (Application Specific Integrated Chips) development.

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