Broadcom's potential software target list likely does not end with Symantec

Symformec's (SYMC) pursuit of Broadcom (AVGO) may have slackened, but that will probably not be the end of Broadcom's pursuit of large software deals.

Two weeks after Hock Tan's company was reportedly engaged in "advanced negotiations" for the purchase of security technology company Symantec, CNBC, Reuters and Bloomberg announced that negotiations had ended for lack of a price agreement. Each report indicates that Broadcom fell back from an initial offering price of $ 28.25 per share after doing the due diligence. Bloomberg adds that the talks "found themselves in the stalemate this weekend after Broadcom sought to reduce its bid by more than $ 1.50 per share."

The title of Symantec is down 15.4% to $ 21.64 at the time of writing this article, making all the gains it had seen two weeks ago regarding discussions about talks with Broadcom. Broadcom, which had sold moderately on these reports, is up 1.6% to $ 290.05.

The fact that Broadcom apparently found things about Symantec that they did not like after research should not be a shock. As I noted after receipt of the first transaction reports, an acquisition of Symantec would in some respects be more difficult than last year's $ 18.9 billion purchase agreement. , as Symantec has clearly seen decreases in revenue and shared losses in many businesses. that his business security software business is facing much more competition than that of CA's core software.

Nevertheless, given that a redemption price of $ 26.50 per share would still be an appreciable premium over the current Symantec market, Symantec may eventually return to the bargaining table. This could be due to the fact that Symantec's management and board of directors chose to take over the buy-back negotiations alone or, as was the case for the Altera programmable chip developer, which initially rejected an offer of Intel's (INTC) buyout in 2015 as investors put them under pressure. do this. Admittedly, the performance of Symantec's shares over the last few years may help convince some shareholders that Symantec has an interest in accepting a reduced offering from Broadcom.

However, if Broadcom is definitely away from Symantec, it may be only a matter of time before Broadcom makes another major software transaction.

Shortly after news of the Symantec talks reached, CNBC announced that Broadcom was also considering buying Tibco's software and analytics software company, acquired by private equity firm Vista Equity for 4.3 billion in 2014. She added that different teams of Broadcom advisors were simultaneously working on bids for Symantec and Tibco because "Tan is determined to make a major acquisition this year."

And as Tan has already stated in the past that Broadcom wanted to lead the consolidation in the field of "infrastructure software" as it did before in the chip industry, there are also other possibilities . Since the agreement with CA was signed, it has been speculated that Broadcom could take on its rival BMC Software, which was bought by private equity firm KKR for 8 , $ 5 billion in 2018. Micro Focus International (MCFUF), a British CA peer that purchased the most HP Enterprise Software (HPE) in 2016 and whose shares are trading well below their 2017 highs, is another potential goal.

It is also possible that Broadcom will choose to pursue another merger and acquisition of chips, especially if the easing of commercial tensions gives the company an assurance that the Chinese regulators will not fail to an offer. When calling the company's results on June 13 (three weeks before the Symantec reports arrive), Tan claimed that Broadcom remains "very active in evaluating" potential deals.

One thing is for sure: Broadcom should have no trouble financing another large acquisition, if any. Corporate debt markets remain quite supportive and Broadcom's current net debt balance of $ 29 billion is not excessive for a company with a market capitalization of $ 115 billion, which is expected to generate more than $ 9 billion. billion of free cash flow in the current year. the well-deserved reputation of making debt-financed acquisitions profitable.

Broadcom has long acted as a private equity firm when it came to making acquisitions and making them work. And for the moment, even though multiples have multiplied in some areas, there are still many goals imaginable for a company that takes a similar approach to that of PE for the realization of software contracts and chips.