How the CA Technologies Acquisition Could Help Broadcom

In early November, Broadcom (AVGO) closed the acquisition of CA Technologies for an equity value of ~$18.9 billion. Broadcom’s all-cash CA Technologies deal was made to please shareholders after it failed to make the biggest ever technology deal with Qualcomm (QCOM).

The addition of CA Technologies makes sense to Broadcom, which has grown into a $100 billion giant through organic product development and a series of acquisitions. Broadcom also foresees a lot of potential in CA’s mainframe-related software products, which account for over half of CA’s revenue. Further, CA technologies is expected to add to the company’s portfolio of high-margin products.

Further, Broadcom might gain from CA Technologies’ customer relationships with major enterprises. The acquisition is also expected to contribute to the sales of the enterprise storage unit. In the fourth quarter, sales for the enterprise storage division doubled to $1.3 billion aided by the acquisition.

CA Technologies hasn’t been doing so well in the last few years. Its revenue has fallen consistently from fiscal 2013 to fiscal 2016, as we can see in the chart above, and it was almost flat in fiscal 2017, but it picked up the pace in fiscal 2018 due to the contribution from acquisitions.