uploads///A_Semiconductors_AVGO_CA Merger

Why Broadcom Chose CA Technologies as Its Next Acquisition Target


Nov. 20 2020, Updated 1:44 p.m. ET

Broadcom to acquire CA Technologies

Broadcom (AVGO) stock fell 13.75% on July 12, a day after the company announced plans to acquire mainframe software provider CA Technologies (CA) in an all-cash deal of $18.9 billion. The deal values CA stock at $44.50 per share, representing a 20.0% premium over the stock’s closing price on July 11. This deal comes four months after President Trump blocked Broadcom’s $117.0 billion acquisition of Qualcomm (QCOM).

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About CA Technologies

CA Technologies (CA) creates software for mainframe, distributed computing, virtual machine, and cloud computing environments. The company has a diverse customer base, as its software is used by numerous companies and government organizations in a variety of sectors. CA has been an aggressive acquirer in the past.

Why is Broadcom interested in CA Technologies?

Broadcom (AVGO) is a hardware firm that deals with manufacturing and selling communications chips to a diverse set of customers. In November 2017, it acquired Brocade Communications to expand its enterprise storage offerings. Then it tried to acquire wireless chip competitor Qualcomm. All these mergers fit Broadcom’s business model, but CA Technologies doesn’t appear to fit that model.

In a press release, Broadcom CEO Hock Tan stated that the company is interested in CA Technologies for its diverse customer base in the growing and fragmented infrastructure software market. Tan stated that CA’s unique position in the software market could help Broadcom expand its mission-critical technology portfolio and make it a larger player in the enterprise infrastructure technology space.

CA meets most of the parameters Tan considers in an acquisition target. He buys market leaders that have high cash flows and that aren’t at the peak of their business. Although CA Technologies sees a decline in its core market of mainframe software, its cash flows remain strong. Broadcom expects to earn decent cash flows from CA’s mainframe business for a long time.

However, analysts and investors weren’t convinced about the CA deal. Next, we’ll see what analysts think about Broadcom.

Check out all the data we have added to our quote pages. Now you can get a valuation snapshot, earnings and revenue estimates, and historical data as well as dividend info. Take a look!


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