Late Wednesday night, Broadcom said it would purchase the software company for $18.9 billion. In the release announcing the move, Broadcom said it was continuing its strategy of purchasing “established mission critical technology businesses,” and the deal would expand its total addressable market to include the growing and fragmented infrastructure software market.
Still, the news has investors questioning why the hardware company would purchase a software company — particularly one that doesn’t integrate with Broadcom’s technology.
Shamus McGillicuddy, senior analyst for network management at Enterprise Management Associates (EMA), said that the deal doesn’t really have to do with the technology strategy. “This a financial win for both sides of the deal,” he wrote in an email to SDxCentral. “Broadcom has seen its profit margins erode in recent years. CA is a highly profitable software company. When combined, Broadcom’s margins improve.”
“The merger doesn’t make sense from a strategic technology standpoint. They exist on opposite ends of the market. They may find some synergies, but I don’t see these two companies as a natural fit,” said McGillicuddy. He continued that he expects Broadcom will have a hands-off approach when it comes to managing CA Technologies and treat it as a independent entity.
McGillicuddy may see the financial implications of the deal but others are uncertain. Nomura Instinet analyst Romit Shah told The Street that the deal came out of left field.
Nevertheless, Bloomberg reported that Broadcom CFO Tom Krause said the company’s acquisition strategy is to “‘find value in public markets where the existing investors don’t see it.’”
If Broadcom’s past acquisition strategy is any guide, the company may sell off parts of CA similar to what it did with Brocade’s IP networking business and its Ruckus Wireless assets. After Broadcom bought Brocade, it sold Brocade’s Ruckus Wireless and ICX Switch businesses to cable-equipment vendor Arris. Additionally, Brocade sold off its IP networking assets piece by piece — Extreme Networks, AT&T, and more purchased pieces — leading up to the completion of Broadcom’s purchase.