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Is Broadcom (AVGO) a Step Closer to Acquiring Symantec?

Zacks Equity Research

Broadcom AVGO reportedly moved a step closer toward the acquisition of Symantec Corporation SYMC. According to rumors, the semiconductor behemoth has secured funding and identified cost savings for the proposed buyout. Notably, the deal is likely to be worth more than $22 billion, including debt, according to rumors citing “people familiar with the matter.”

Meanwhile, CNBC reports say that Broadcom is considering acquiring Tibco Software, an infrastructure software company, in case Symantec deal fails to be materialized.

Palo Alto-based Tibco Software is a big data software platform that was purchased by Vista Equity Partners, a private equity firm, for $4.3 billion. Founded in 1997, the company manages information, decisions, processes and applications for more than 10,000 customers worldwide. However, Tibco Software refrained from making any comments about the rumored deal. Consequently, the terms of the deal are unknown.

Broadcom has been shifting away from the semiconductor business of late and is targeting software companies owing to uncertainty regarding Huawei which was blacklisted by the Trump administration for national security reasons. The trump administration claims that Huawei is involved in espionage for Beijing. The blacklisting has restricted US companies from doing business with Huawei.

Further, Broadcom has slashed prediction for semiconductor sales this year by $2 billion.

Broadcom Inc. Price and Consensus

Broadcom Inc. Price and Consensus

Broadcom Inc. price-consensus-chart | Broadcom Inc. Quote

Coming to Symantec Buyout

Symantec, a world leader in Internet security technology, provides a broad range of solutions for content security and information back up to individuals and enterprises. Founded in 1982, the company has operations in more than 45 countries. It provides cyber security products, services and solutions to more than 350,000 organizations and 50 million individuals worldwide.

Notably, the deals marks Broadcom’s second biggest attempt to strengthen foothold in the software market, following its $18 billion agreement to acquire CA Technologies last year. Moreover, the rumors surfaced following President Trump’s prohibition of the Qualcomm QCOM on grounds of national security concerns.

Symantec is facing increased competition from bellwethers such as Cisco, Microsoft MSFT and Intel. Moreover, the company, which was under investigation owing to accounting misconduct, has also faced managerial changes after the stepping down of CEO Greg Clark.

Likely Benefits of the Deal

The aforementioned deal is in sync with Broadcom’s attempts to expand enterprise software capabilities and substantial customer base. On completion, positive synergies from this deal are likely to drive the company’s growth in cyber security market globally.

Further, software is ubiquitous and has become the focal point of technological innovation. Notably, the new development inspires optimism as there is an abundance of software opportunities in the digital cloud era.

These factors will pave the way for Broadcom to diversify end markets and customer base, which bodes well for the long haul. This is anticipated to add resilience to Broadcom’s current business model.

Consequently, the latest deal should allow it to capture larger shares in this expanding market, going ahead.

Our take

Broadcom’s expanding product portfolio positions it well to address the needs of rapidly growing technologies like IoT and 5G. We believe that the company’s extensive product portfolio is a key catalyst.

Furthermore, the company pursues an aggressive acquisition strategy, which in turn fortifies its business model by diversifying end markets.

We remain inquisitive as to how it will integrate Symantec’s software business with the chipmaker’s methodologies. The move is in line with Broadcom’s previous buyouts and will be interesting to observe its strategy to capitalize on the potential of growing software business.

Zacks Rank

Currently, Broadcom carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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