Broadcom acquires CA Technologies in $18bn deal

September 2018 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

September 2018 Issue

In a transaction designed to build a leading infrastructure technology company, semiconductor device supplier Broadcom Inc. is to acquire CA Technologies, a leading provider of information technology (IT) management software and solutions.

Under the terms of the agreement, which has been approved by the boards of directors of both companies, CA’s shareholders will receive $44.50 per share in cash. Broadcom intends to fund the transaction with cash on hand and new, fully-committed debt financing. Broadcom also expects to maintain an investment grade rating, given its strong cash flow generation and intention to rapidly deleverage.

The all-cash transaction represents an equity value of approximately $18.9bn and an enterprise value of approximately $18.4bn.

The acquisition of CA Technologies is also expected to position Broadcom to: (i) continue its focus on acquiring established mission critical technology businesses; (ii) expand its total addressable market (TAM) to include the growing and fragmented infrastructure software market; (iii) provide significant recurring revenue; (iv) drive long-term adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) margins above 55 percent and be immediately accretive to non-generally accepted accounting principles (GAAP) earning per share (EPS); and (v) enable the sustainability of double-digit EPS compound annual growth rate (CAGR).

A leading designer, developer and global supplier of a broad range of digital and analogue semiconductor connectivity solutions, Singapore-based Broadcom’s extensive product portfolio serves four primary end markets: wired infrastructure, wireless communications, enterprise storage and industrial & other.

“This transaction represents an important building block as we create one of the world’s leading infrastructure technology companies,” said Hock Tan, president and chief executive of Broadcom. “With its sizeable installed base of customers, CA Technologies is uniquely positioned across the growing and fragmented infrastructure software market, and its mainframe and enterprise software franchises will add to our portfolio of mission critical technology businesses. We intend to continue to strengthen these franchises to meet the growing demand for infrastructure software solutions.”

Broadcom’s acquisition of US-based CA Technologies follows a failed $140bn takeover of American multinational semiconductor and telecommunications equipment company Qualcomm earlier this year, which was blocked by US president Donald Trump on national security grounds. Unlike its attempt to acquire Qualcomm, there is no expectation that the Trump administration will interfere this time around.

As a global leader in mainframe and enterprise software, CA Technologies’ solutions help organisations of all sizes develop, manage and secure complex IT environments that increase productivity and enhance competitiveness. The company operates across 40 countries and currently holds more than 1500 patents worldwide, with more than 950 patents pending.

“We are excited to have reached this definitive agreement with Broadcom,” said Mike Gregoire, chief executive of CA Technologies. “This combination aligns our expertise in software with Broadcom’s leadership in the semiconductor industry. The benefits of this agreement extend to our shareholders who will receive a significant and immediate premium for their shares, as well as our employees who will join an organisation that shares our values of innovation, collaboration and engineering excellence. We look forward to completing the transaction and ensuring a smooth transition.”

Careal Property Group AG and affiliates, which collectively own approximately 25 percent of the outstanding shares of CA Technologies’ common stock, have entered into a voting agreement to vote in favour of the transaction.

The transaction is subject to customary closing conditions, including the approval of CA Technologies’ shareholders and antitrust approvals in the US, the EU and Japan, and is expected to close in the fourth quarter of 2018.

Fraser Tennant