Summary
- Bloomberg is reporting that Broadcom is in advanced talks to acquire cybersecurity giant Symantec for over $15 billion.
- Acquiring Symantec makes some sense for Broadcom, particularly in light of the CA deal, but Symantec's strategic/competitive position is not as secure as CA's.
- Buying a high-margin business that could generate over $1 billion in annual free cash flow makes sense, but Broadcom would be taking a bigger risk with this deal.
Investors are still split on the merits of Broadcom’s (AVGO) 2018 acquisition of CA, but Broadcom management apparently isn’t letting those concerns get in the way of their strategic plans. To that end, Bloomberg is reporting that Broadcom is in advanced discussions to acquire Symantec (SYMC) at an enterprise value of over $15 billion.
The key attraction of Symantec would be similar to that of CA – high operating margins and theoretically consistent free cash flows, boosted by Broadcom’s aggressive cost-reduction efforts. That argument makes sense to a point, but given the challenges Symantec has seen in its business and the lack of a “moat” relative to CA, I expect this deal to be even less popular with some investors, not that that will dissuade CEO Hock Tan from following his plan.
The Rumored Deal
Bloomberg ran a story after the close on Tuesday asserting that Broadcom is in “advanced talks” with Symantec regarding an acquisition. A total deal value of over $15 billion has been floated, and it is possible that the final price could end up pretty close to the $18 billion that Broadcom paid for CA. With the deal just at the rumor stage (as of this writing), it’s difficult to estimate the potential cost savings that Broadcom would target, but 10% is probably a good starting point based upon past experience, and I’d note that Symantec’s interim CEO has himself discussed the need to enhance productivity by reducing costs.
Broadcom could pay close to $17 billion and still be paying a reasonable multiple relative to how the market generally prices companies with Symantec’s revenue growth and margin prospects (excluding the cost-cutting). In Symantec’s case, ongoing worries about the real health of the company’s enterprise business, its competitiveness, and the above-average volatility in recent results would explain at some of the discount to that “fair value” before the news of a potential bid from Broadcom. Before getting into the merits of a potential bid, I should also note that this isn’t the first time the idea of Broadcom buying Symantec has been floated. Even before the CA deal, Symantec was considered a potential target if Broadcom ever wanted to diversify into software. Once Broadcom confirmed that interest with the CA deal, Symantec became a frequent-flyer in sell-side “who will Broadcom buy next?” reports.
