Why chipmaker Broadcom plans to acquire software firm SAS?

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Why chipmaker Broadcom plans to acquire software firm SAS?

 Why chipmaker Broadcom plans to acquire software firm SAS?
Image source: giggsy25,Shutterstock

Summary

  • Semiconductor major Broadcom’s stock prices went up by 0.78% after the news.
  • The deal is valued at US$15-US$20 billion.
  • Its market cap is likely to reach US200 billion.

Chipmaker Broadcom Inc. (Nasdaq: AVGO) plans to buy software company SAS in a deal worth US$15-US$20 billion. The agreement will be finalized in the coming months.

Following the news, the stock price went up by 0.73% at 2.23 am ET on July 12.

Its market capitalization is US$198 billion. The stock gained more than 55.41% YoY. The deal value includes SAS debt and its balance sheet. AVGO has been searching for deals since it could not buy Qualcomm (QCOM) in 2018. Then President Donald Trump had stopped the talks citing security risk., Broadcom had since moved its headquarters from Singapore to US.

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Source: Pixabay.

Broadcom, a powerhouse of semiconductors, has been built through various acquisitions. Its Chief Executive Hock Tan has been on a buying spree and trying to diversify the company into a software firm. The company bought CA Technologies, another software firm, for US$19 billion in 2019. Next year, it bought Symantec, a software firm, for US$10.7 billion.

SAS or Software Analysis System sells data-management software, analytics, and business intelligence. John Sall and Jim Goodnight had founded the company in 1976. SAS earns US$3 billion profit a year.

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There have been rumors of SAS being sold. A decade ago, rumors were doing rounds that IBM bought the company. Initially this year, the news was Microsoft or IMB to buy SAS. Microsoft works closely with SAS on various fronts, including cloud computing.

The giant tech firms are currently seen acquiring smaller technology firms. Salesforce.com Inc. last year bought Slack Technologies, a messaging technology company, for US$27.7 billion. And Microsoft had acquired Nuance Communication for US$16 billion last year. Technology giants and experts are keeping watch on how the Biden administration reacts to mergers and acquisitions of tech companies.

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How does Broadcom’s financials look like?

Broadcom has a P/E ratio of 45.12, and the forward P/E 1 year is 19.96. Its earnings per share are US$10.73, and it had given US$14.40 as annual dividends to shareholders. The current yield is 3%, and the beta is 0.92. 

The company reported total revenue of US$6.6 billion in Q2, 2021, which ended on May 2, up by 15 percent YoY. Its net income was US$1.4 billion compared to US$563 million YoY. Earnings per share for Q2, 2021, were US$3.30 compared to US$1.17 of Q2, 2020.

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Cash flow from operations was US$3.5 billion and free cash flow was US$3.4 billion. Adjusted EBITDA was US$3.9 billion. It paid a quarterly dividend of US$3.60 per common stock. The company expects third-quarter revenue of US$6.75 billion.

Please note: The above constitutes a preliminary view and any interest in stocks/cryptocurrencies should be evaluated further from an investment point of view.

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