Broadcom's Got Deal Chops

Shareholders trust that Hock Tan knows what he's doing in buying Brocade.
At Closing, April 20st
237.12 USD
At Closing, April 20st
3.71 USD

Broadcom Ltd. CEO Hock Tan and his counterpart at Brocade Communications Systems Inc. sure like to keep their bankers busy.

The two companies announced Wednesday that Broadcom will buy Brocade, a maker of switches for data-storage networks, for $5.9 billion including debt. The deal comes less than a year after Tan, then CEO of Avago Technologies Ltd., closed on the chipmaker's more than $30 billion purchase of Broadcom. He has now orchestrated at least six transactions valued at more than $100 million over the past five years. Only  semiconductor heavyweights like Intel Corp. have been more active on the M&A front, according to data compiled by Bloomberg. And those exploits have paid off:

On the Up and Up

Shares of the formerly known as Avago Technologies have seen above-market gains over the past five years

Source: Bloomberg

Brocade CEO Lloyd Carney is no slouch either. This is the third straight company he has led that's wound up getting sold. Previously, he was CEO of Xsigo Systems, a data-center virtualization company that sold itself to Oracle Corp. in 2012. Before that, he was head of Micromuse, a maker of network-management software that was acquired by International Business Machines Corp. in 2006.


Brocade CEO Lloyd Carney has now sold the last three companies he's led as CEO

Source: Bloomberg

End date reflects the year in which the sale of the respective companies was completed. Carney worked for IBM following the acquisition of Micromuse.

So far, investors seem to be a fan of their latest endeavor. Shares of Brocade surged as is to be expected, but Broadcom also gained as much as 3.2 percent. Acquirers' stocks rising became more common in 2014 and 2015 as easy access to money and low interest rates made deals more accretive. With takeovers becoming more expensive in many industries (including semiconductors), that's become a less frequent phenomenon.  

Making Amends

Broadcom is almost matching Brocade's 2015 high, helping shareholders recoup their losses

Source: Bloomberg

For Brocade's part, shareholders are getting a $12.75-a-share offer that more than makes up for the company's slide over the past year amid sales setbacks. Broadcom shareholders are probably relieved that the company is going to sell Brocade's internet-gear business in connection with the transaction, rather than try to compete in an industry where many of its customers operate. Brocade isn't the fastest-growing company, but it's a cash cow. The deal will be immediately accretive to Broadcom's adjusted earnings per share and it's not paying an outrageous multiple for the privilege at about 13 times Brocade's Ebitda over the last 12 months.

Steady as She Goes

Brocade isn't growing all that quickly, but it generates stable free cash flow

Source: Bloomberg

This probably won't be the last deal we see from Broadcom and its CEO. On a conference call to discuss the Brocade deal, he said he doesn't think the company has reached a point where it says it's done with deals and that it can be flexible about addressing opportunities when they show up. As long as Broadcom keeps picking smart, accretive takeovers, shareholders may be OK with that

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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    Brooke Sutherland in New York at

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    Beth Williams at

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