In the midst of the World Cup 2018, an acquisition occurred that left everyone scratching their heads.
Both companies are no strangers to acquisitions. CA Technologies grew from a mainframe software player into an enterprise management and performance monitoring firm through a series of acquisitions. It still has a healthy buying appetite, grabbing Veracode and Automic most recently.
Meanwhile, Broadcom's most recent USD 117 billion bid for Qualcomm, which the Trump administration nixed, grabbed headlines and showed the company's appetite to buy big.
But why is a major leagues player in the semiconductor space buying an enterprise management company? It is a USD 18.9 million question, the amount Broadcom is paying in cash.
Mark Hung, Research VP, Gartner believes Broadcom is branching out from traditional semiconductor manufacturing.
“Because of the rapid pace of consolidation in the chip sector over the past decade, potential acquisition targets have declined significantly. As a result, Broadcom is now targeting companies in the broader technology sector that fit within their evaluation criteria,” he said.
It makes some sense if you consider how competitive the semiconductor manufacturing space is. Besides, smartphone players are always looking to own their semiconductor manufacturing. So, this acquisition can be seen as a defensive move by the chipmaker.
CA’s take on the acquisition offered more clues. It said, “The majority of CA’s largest customers transact with CA across both its Mainframe and Enterprise Solutions portfolios. CA benefits from predictable and recurring revenues with the average duration of bookings exceeding three years”.
Three years is longer than the lifecycle of smartphones where most of the semiconductor players like Broadcom play. The recurring revenues can help to calm some nerves.
What is clear is that after the acquisition the two companies will be, well, two companies.
“There is very little overlap (if any) between the two customer sets, and they probably shouldn’t expect to see any potential benefits from this transaction. It will be business as usual,” Hung said.
Even the technology stacks are different. “There are really no technology or market synergies between the two companies, so I do not expect to see the combined company’s product roadmap to be affected with this transaction,” Hung added.
Hock Tan, President and Chief Executive Officer of Broadcom offered an explanation, saying “This transaction represents an important building block as we create one of the world's leading infrastructure technology companies.”
It is unclear what building block CA Technologies will become.
But my money is on the patents. Both companies have amassed a lot of them. Also, CA Technologies has built its patent war chest for decades. This will allow Broadcom to go on the offensive in a competitive market where it has very little room to buy because of its colossal size.
The real story? Nobody knows. It is as if the story behind this acquisition is not written yet.