Thursday, July 4, 2019
San Jose-based Broadcom Inc. made headlines last year after the Trump administration blocked its attempted $117 billion hostile takeover of rival chipmaker Qualcomm Inc.
Now, Broadcom says it’s no longer interested in buying independent semiconductor companies like Qualcomm because they’re overpriced relative to their value. Instead, it plans to look for acquisitions in the infrastructure software space, similar to its $19 billion buyout of CA Technologies last July.
That's according to analysts at Morgan Stanley, who published an investors note Monday after speaking to Broadcom CFO Thomas Krause. Business Insider first spotted the note.
“In semiconductors, [Broadcom] was early and led the wave of consolidation seen across the industry,” Morgan Stanley analyst Craig Hettenbach wrote in his note. “However, with many assets already off the board and remaining companies trading at high valuation multiples, the opportunity set in semis is much lower today.”
The company told Morgan Stanley it thinks there’s an opportunity to launch a similar consolidation in the infrastructure software space, particularly among companies that focus on hybrid cloud software. Infrastructure software companies aren’t nearly as hot as semiconductors, which are operating under the added complexity of the Trump administration’s scrutiny of deals involving sensitive American technology.
Broadcom’s buyout of CA Technologies is already bearing fruit, Morgan Stanley says — and is nearing a 14 percent return on investment.
“Broadcom's approach to M&A is to deliver high cash on cash returns, which it has been quite successful in achieving to date,” Hettenbach wrote.
Broadcom CEO Hock Tan is a voracious dealmaker who built his career on buying undervalued companies and spinning them into major operations. The company launched in 2005 as Avago Technologies, went public in 2008 and went on a shopping spree, buying larger and larger rivals.
In 2015, Avago bought Broadcom in a $37 billion deal and assumed Broadcom’s better-known brand name. The following year, it mounted a successful $5.9 billion takeover of San Jose-based Brocade Communications.
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