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Semiconductor giant Broadcom has confirmed plans to acquire cloud computing and virtualization tech company VMware in a deal worth $61 billion.
The deal, which follows days of rumors and speculation, represents one of the biggest technology acquisitions ever, sitting marginally behind Dell’s $67 billion EMC purchase and Microsoft’s proposed $69 billion Activision Blizzard acquisition.
Broadcom hasn’t shied away from big-dollar acquisitions as part of its growth strategy, having doled out a combined $30 billion for Symantec’s enterprise unit and mainframe software company CA Inc. over the past four years.
While Broadcom is better known for chips that power devices including smartphones, PCs, and networking equipment, bringing VMware under its wing will help it diversify and become “the world’s leading infrastructure technology company,” according to a press release.
What that means is that Broadcom is expanding beyond chips and looking to the enterprise software sphere, which — in the case of VMware — offers a highly lucrative recurring revenue model. Indeed, VMware has played a pivotal part in the technology world’s transition to the cloud, serving up software that powers multi-cloud management, infrastructure, networking, security, and more.
“Building upon our proven track record of successful M&A, this transaction combines our leading semiconductor and infrastructure software businesses with an iconic pioneer and innovator in enterprise software, as we reimagine what we can deliver to customers as a leading infrastructure technology company,” Broadcom president and CEO Hock Tan said in a statement.
Bola Rotibi, director of software development at research and advisory firm CCS Insight, said that the deal gives Broadcom a more “rounded infrastructure and cloud management story,” but warned that the deal won’t make Broadcom a software company overnight.
“VMware has a well-established footprint in data centers, giving Broadcom a much stronger position — particularly with the developer community and at the developer operations level,” Rotibi said. “However, acquiring VMware doesn’t immediately transform Broadcom into a software company. This has significant integration risk and Broadcom must prove that it can integrate a silicon, software and services story.”
Broadcom said that it plans to purchase all outstanding VMware shares — 50.2% of which is owned by Michael Dell and Silver Lake — as part of a cash-and-stock transaction, and represents a 44% premium on the closing price of VMware’s common stock last Friday.
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