Broadcom is looking to expand its enterprise software business by acquiring SAS, according to The Wall Street Journal.
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Broadcom is in talks to buy enterprise software company SAS Institute for as much as $20 billion, The Wall Street Journal reported on Monday.
In afternoon trading, shares of Broadcom (ticker: AVGO) were up 0.7% to $83.55.
Broadcom, a semiconductor and infrastructure software heavyweight, would be doubling down on its already sizable enterprise software business if it acquires SAS for $15 billion to $20 billion, people familiar with the negotiations told the Journal. That arm of the company’s operations took off in 2015 with the $37 billion merger of Avago and Broadcom.
SAS generated $3 billion in revenue last year, according to the company’s annual report; a $15 billion-to-$20 billion deal suggests a valuation of roughly 5 to 6.7 times 2020 revenue.
The $15 billion-to-$20 billion deal price is based on the enterprise value of SAS, which typically includes debt, and is adjusted for cash in a businesses’ financial statements, sources told the Journal.
Broadcom and SAS didn’t respond to a request for comment from Barron’s.
North Carolina-based SAS sells a range of enterprise software, including customer-intelligence and visual-analytics products. Banking accounts for not quite a third—30%— of the company’s software revenue, according to the annual report. Government accounts for 17% and insurance amounting to 11%.
SAS was founded about 40 years ago by Jim Goodnight and John Sall. The men still run the company, which now has 12,545 employees.
The deal fits neatly into Broadcom’s playbook. In the past few years, the tech giant has made acquisitions to carve out costs and generate cash flow, Charles Lemonides, chief investment officer at ValueWorks, told Barron’s.
“It doesn’t get growth from business it acquired five and seven years ago because it tends to hollow them out,” he said.
Broadcom is likely to use its stock to buy SAS if the deal goes through. In part because of the surge in global demand for chips, the stock has gained about 52% in the past year, as the PHLX Semiconductor index, or Sox, rose 60%. And the company has about $40 billion in debt on its balance sheet, which suggests it probably wouldn’t borrow money to complete an acquisition.
Broadcom has significantly expanded its portfolio of subsidiary companies under chief executive Hock Tan, who was Avago’s CEO. After buying software CA Technologies for $19 billion in 2018, Broadcom acquired Symantec ‘s enterprise security business for roughly $10 billion. Broadcom also made a failed bid for Qualcomm (QCOM) in 2018, and bought Argon Design for $1 billion in 2019.
Write to Max A. Cherney at [email protected]
