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November 2, 2016
martinwolf  Discussion
Broadcom to Buy Brocade Communications
 
Financial Information
  • Enterprise Value                            $5.6 billion
  • EV/LTM Revenue                          2.4x
  • EV/LTM EBITDA                           11.3x 
Transaction Facts
  • Broadcom Limited (Nasdaq: AVGO) announced today that it agreed to acquire Brocade Communications Systems (Nasdaq:BRCD).
  • Brocade investors will receive 12.75 per share in cash in the transaction, representing a 47 percent premium over Brocade's closing price Friday.
  • Broadcom shares closed today up 2.23 percent, though they declined 1.5 percent after hours.
  • The transaction is scheduled to close sometime in the second half of Broadcom's fiscal year, which began October 31.
Consolidation Continues in Semiconductor Space 
  • One Year Later, Making Big Waves: Broadcom Limited, originally Avago before taking Broadcom's name as part of a $37 billion acquisition, continues to dramatically grow and improve the business - this time by expanding into storage area networking space.
  • Billions and Billions Sold: The semiconductor industry has seen significant consolidation in recent months, with over $100 billion in deals in the last 24 months. Acquisitions have included Qualcomm's agreement to purchase NXP Semiconductors for $45 billion, Intel's $17 billion purchase of Altera and Softbank's $32 billion acquisition of ARM Holdings.
  • Targeted Growth: Broadcom also announced that it plans to divest Brocade's IP Networking business, acquired in its $1.5 billion purchase of Ruckus Wireless in April and including wireless networking, switching and routing and software networking solutions - some of which compete with Broadcom's largest customers such as Cisco and HP Enterprise. However, the broader acquisition is not conditional on this divestiture.
  • Branching out and Lifting Pressure: Broadcom is a heavy supplier of wireless chips to smartphone manufacturers, and like Qualcomm is facing increased pressure thanks to market maturation. This deal helps diversify its customer set, preserving margins in a competitive industry.
For more information about this transaction,  click here to read the press release.

martinwolf was not the advisor in this transaction.

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