Broadcom’s acquisition of VMware for approximately $61 billion in a cash-and-stock transaction, together with VMware’s net debt of $8 billion, on paper does not seem like an ideal fit with Broadcom’s strategic aspirations, but it has the potential to succeed.
Broadcom also has a chequered history in Mergers and Acquisitions (M&A), which can be characterized by Broadcom being bought by other companies, as well as Broadcom acquiring other companies. M&A examples include Broadcom being itself acquired in 2015 by chipmaker Avago Technologies Ltd for $37 billion. Following this, Cypress Semiconductor in 2016 announced that it had acquired Broadcom’s full portfolio of IoT products for $550 million. In 2009, the company also settled a much four-year publicized battle with Qualcomm over wireless patents, which resulted in Qualcomm paying $891 million in cash to Broadcom over a four-year period.
In the cybersecurity space, in 2019 Symantec announced that it had entered into a definitive agreement to sell its enterprise security assets, which included the Symantec name, to Broadcom for $10.7 billion in cash. This enabled Broadcom to get a stronger foothold in the cybersecurity space. However, to the markets’ surprise, only a year later Accenture acquired Symantec’s cybersecurity services business from Broadcom.
On paper an unlikely fit
Now, in this moment in time, Broadcom, which is traditionally a semiconductor and infrastructure software player that incorporates a portion of Symantec’s cybersecurity portfolio capabilities (XDR, SASE and Endpoint), along with its enterprise security portfolio (integrated cyber defense, identity, information security and payment security), has made a planned bid to acquire a leading US flagship vendor, VMware.
Broadcom’s previous efforts in acquiring cybersecurity vendors can be said to have resulted in short term monetary gains, and a characterization of a global heavyweight that might not be committed in the long run to building a successful cybersecurity company with strong credentials. This will need to change if it is to succeed with VMware’s security business.
Broadcom will need to Invest and provide management backing in VMware’s security business
A host of future cybersecurity complexities stemming from enterprise digital transformation, the exponential rise in cyber attacks, and external market factors, is expected to drive the development of cybersecurity market. This includes innovation in areas such as next generation firewalls, SASE, cloud security, XDR, and Zero trust. Cybersecurity providers in the future will also need to deliver value to enterprise customers by being more relevant to business needs, managing enterprise risks, and in delivering exceptional customer service. This will require commitment, a belief, and support for staff across your cybersecurity business, by senior management and board.
Over the last three years, VMware has really promoted its strong network, cloud, and analytics capabilities, all complemented by its security portfolio through the Carbon Black acquisition. With this in mind, cybersecurity vendors as a whole need to ensure that they stay relevant to enterprise needs from a business perspective as well as a technology one.
Therefore, it will be imperative that Broadcom provides the necessary support and investment in VMware for it to maintain its current trajectory in driving its security business. This will impact key decisions that will have to be made around portfolio overlap in the security segment across Broadcom and VMware’s existing portfolio, and integration across products, engineering, sales, and marketing business functions. Lastly, pivotal to all of this will be how VMware can align and maximize its potential through Broadcom’s 35,000 partner network. In summary, there are a number of hurdles for Broadcom to overcome to succeed with VMware’s security business, even when the deal is made. If the Symantec acquisition is anything to go by Broadcom might want to get its house in order.