Big buyouts have become somewhat of a rarity nowadays, as a rougher economic environment and rising interest rates have dampened many companies’ willingness to spend money right now. However, some businesses are finding this the perfect opportunity to make some acquisitions, especially as stock indexes are trading at a steep discount compared to last year.
Semiconductor firm Broadcom (NASDAQ: AVGO), which has been built largely through other acquisitions, is considering making one of the largest buyouts of the year. The company Broadcom is targeting is VMware (NYSE: VMW), a cloud computing software vendor that only recently was spun off from Dell. Broadcom is supposedly in talks to pay as much as $60 billion to buy out the company.
According to one source close to the deal, the two firms are planning to announce a stock-and-cash deal likely by Thursday. Broadcom will pay around $140 per share and is raising $40 billion in financing to help process the transaction.
“Investors have been increasingly focused on Broadcom’s appetite for another strategic or platform enterprise software acquisition — especially given the recent compression in software valuation,” wrote Wells Fargo analysts after news about the potential buyout broke out. “An acquisition of VMware would be considered as making strategic sense; consistent with Broadcom’s focus on building out a deepening enterprise infrastructure software strategy.”
While there have been a few high profile acquisition offers this year, most notably being Elon Musks’ $44 billion plan to buy out Twitter, 2022 has been a slower year. Companies in the U.S. have finalized $789.5 billion in mergers so far this year, which is 31% lower than the same period back in 2021. The largest proposed buyout this year has been Microsoft’s $69 billion bid for gaming giant Activision-Blizzard, a deal that’s still in limbo.
The situation’s even worse for the IPO market, where new public offerings have effectively disappeared. Most companies are waiting for markets to stabilize before going public. Right now, traders are eager to sell any stock that makes even the slightest slip in earnings or financial results.
Shares of VMware were up over 25.5%, while Broadcom’s stock was down around 2.5%. Most analysts are incredibly optimistic about Broadcom’s chances, with around 27 analysts having a buy rating of some kind. Only four are neutral, and none are bearish.
The general state of the semiconductor industry still is incredibly promising, with lingering shortages and supply chain issues driving up the price of computer chips. While VMware isn’t a chip maker, its cloud computing business synergizes well with Broadcom’s existing business.
VMware Company Profile
VMware is an industry leader in virtualizing IT infrastructure and became a stand-alone entity after spinning off from Dell Technologies in November 2021. The software provider operates in the three segments: licenses; subscriptions and software as a service; and services. VMware’s solutions are used across IT infrastructure, application development, and cybersecurity teams, and the company takes a neutral approach to being the cohesion between cloud environments. The Palo Alto, California, firm operates and sells on a global scale, with about half its revenue from the United States, through direct sales, distributors, and partnerships. – Warrior Trading News