r/stocks
Broadcom M&A (Hock the acquirer and the conquest for IBM)
The author speculates Broadcom might acquire IBM to fill its full-stack infrastructure gaps, leveraging its massive market cap.
- Broadcom's aggressive M&A strategy and massive war chest position it well to acquire complementary tech giants.
- Acquiring a full-stack company would secure Broadcom's long-term dominance in data center infrastructure.
- Broadcom faces headwinds from hyperscalers building custom in-house silicon and networking tools.
- Mega-acquisitions face high regulatory rejection risks, as seen in the failed Qualcomm bid.
In a Bloomberg Interview, Hock Tan (CEO of Broadcom) was asked about the M&A strategy which they have deployed extensively over the course of last decade.
Historically, Hock Tan would partner up with Private Equity and using bank leverage to acquire over other companies. Then selling off non-core assets and laying off to pay down the debts quickly.
2016 -> Broadcom (but kept their name, i.e. AVGO tech acquired over Broadcom)
2017 -> BROCADE
2018 -> ca technologies
2019 -> Symantec
2023 -> vmware
Attempted to make a move on Qualcom, but that was blocked on national security reasons:
Then he moved to acquiring over software companies, but there is less love for software now due to LLMs and agents.
Current day, Broadcom sits above $1.5 Trillion market cap still (despite the selloff). But that interview question on M&A, triggered my chain of thoughts given he seems to admit that he face competition from customer own tooling (google going out to other partners) and CISCO in networking for data-center.
That brings us to the M&A playbook which he helps to use:
Who can he acquire or go after (he knows he might get blocked by regulators just like Qualcom case) but as the saying goes "You miss 100% of the shoots that you didn't take". So he will probably make an attempt for it.
So what does Broadcom lacks (they got TPU/XPU and High Speed Networking in Data-Centre) but those offering still confines them to the operating space of data-centre. And lacks a full-stack offering like CPU and infrastructure.
IBM - makes about $60 billion revenue (FY 2025) annually but market cap is < 300 billion.
Compare that Broadcom market cap \~$1.8T, that close to a 6x difference.
IBM two main growth segments are (consulting division is flat growth)
Hybrid cloud (Red Hat Enterprise Linux) and Linux OS is the preferred OS for most server and data-center setup
IBM Z and IBM Tellum chip, basically the mainframe stuff that needs high reliability 365 days). Essentially institution that needs to process lotsa of transactions daily.
Mainframe, are a sticky business, since those mainframe customers doesn't have the same tech giants profile, where they will eventually develop their own custom tooling/solutions.
Tellum chip, can be added into the portfolio of Broadcom to differential itself from x86 and ARM.
Quantum computing stuff, under IBM infrastructure division is a also potential if he can get that commercialise (someday)
So it seems to that there isn't much of a overlap in terms of the core business between Broadcom and IBM and there are synergies, which if Broadcom attempts to make the M&A move would reduce their overall business cyclicality.
Falling back on the mantra of "you miss 100% of the shoots that you didn't take".
- He has to throw the IBM shareholders a "big bone" to get things moving. Part Broadcom stock and cash deal to acquire over IBM.
- Chances are Hock Tan might make the move but aware of the fact that he gets blocked again by regulators.
Happy to get your thoughts on the M&A play.
Very interesting post that I appreciate is not written by AI. I genuinely think the acquisition would pass through the courts, I just don’t think IBM would be the ideal target.
Like you mentioned, the premium would be enormous. Looking at the average they paid for past acquisition, you’re looking at a 30-40% premium, or around $350B. I don’t think IBM brings anywhere close to enough value to justify that, especially in the age of AI where AVGO is already designing the picks and shovels. Buying IBM would either dilute shareholders or massively raise debt, raising their WACC, and likely lowering ROIC considering IBM is not growing as quickly as Broadcom.
The quantum part of IBM is the most interesting to me, and the only piece outside of software that I think Broadcom would want. The synergies between the 2 could probably unlock something and make Broadcom a massive player in the space.
If they did acquire them for some reason, I would hope they spin off the consulting side of the business. That’s unnecessary baggage that could help lower the cost and debt load
??? Makes me doubt you actually wrote the post now
I think he alluded to this in his interview today with Bloomberg. He mentioned that he does not want to get distracted by another M&A in this wild AI buildout era. Acquiring a company like IBM will suck up a lot of his focus.
I don't look at intent but rather on capabilities.
He has that $$ and track record.
Intent can switch as fast as a transistor.
lol.. why is he a pos?
I can see the strategic fit, but IBM feels way outside Broadcom's usual playbook. The size, regulatory scrutiny, and complexity would make it a tough deal to pull off, even if the numbers work.
i would be surprised if they went after IBM before targeting something smaller and easier to integrate.
Hock has been very consistent on their M&A strategy the past 10 years. You can listen to his earnings calls and public appearances on YouTube. He’s an open book.
Pre-AI, the semiconductor business was boom and bust. It was hard to make money. He got into M&A because he felt it was the best way for Broadcom to grow. VMware came out of left field but was a way for them to diversify the business away from semiconductors.
Since the AI boom began, Hock has said he’s 100% focused on AI. He said they’re not against M&A and will be opportunistic but they are focused on delevering, increasing dividends, and buying back stock at the right time.
There’s no real need for them to go into M&A right now. They will be growing at 60% CAGR the next 3 years and there’s a good chance growth accelerates. Also, valuations are stretched across the board. Finally, Broadcom is a much bigger company now and might face greater antitrust scrutiny as a result. Finally, Hock has extended his contract until 2030. There won’t be much time for him to make a buy, get antitrust approval, and then oversee the integration.
But he also admit competition is rising in the AI cycle.
Mainly because people see your margins that high.
It’s a human behavioural thing to come in and take some of that. I don’t know if he genuinely means competition is good and welcome.
But often not those big CEOs (both hock and Jensen) would prefer less competition just that their high margins would keep attracting new entrants.
How would buying IBM make them more competitive? Their main competitive challenge is their customers are looking to diversify away from their main revenue driver (custom silicon). Best way to address that is through R&D to improve its technology.
IBM has cpu stuff/IP as well.
I think we can agree, data Center CPU is dominated by x86 and ARM. Broadcom isn’t really there.
Whilst accelerated compute, Nvidia gpu and Broadcom TPU.
In networking, is Nvidia mellanox and Broadcom tomahawk.
And IBM holds tonnes of filed IP, whether you can hit the jackpot in that stack of IP depends on the ability of your engineers, foresight and some luck.
The AVGO M&A playbook heavily focuses on “franchises” where the acquired have a clear market leading position in an area. IBM’s consulting arm seems like a bad fit for that.
I’ve always thought AVGO should be targeting ADSK. Market leader in CAD software and horrifically inefficient. The problem is CAD might not be a good fit with the rest of AVGO’s software business.
Isn't IBM a market leader in
Quantum computing
Mainframe
And Linux with REHL
Broadcom should've acquired MediaTek (2454.TW) last year. Now it's taking some of the ASICs business and could threaten Boradcom's juicy Nvidia like semiconductor margins.
I like that idea, but Taiwan regulators would likely have blocked it.
That’s the only name in Taiwan that does SOC design.
You are probably right. I am not familiar with the regulations on mergers and buyouts. Countries usually try to protect and preserve their national champions.
I think one of the reasons Jensen bought into MRVL was to block any kind of move from Hock Tan.