Things Are Moving In Semiconductor Networking M&A

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 |  Includes: AVGO, CAVM, INTC, MLNX, MRVL, NETL, QCOM
by: 451 Research: Inorganic Growth

By Ben Kolada

In announcing its largest-ever deal, and paying a princely price at the same time, Broadcom (BRCM) is keeping the ball rolling in semiconductor networking M&A. The company’s nearly $4bn pickup of NetLogic Microsystems (NASDAQ:NETL) comes less than two months after rival Intel (NASDAQ:INTC) announced a smaller strategic play of its own, and it likely won’t be the last transaction before the buyout curtain closes.

After a dearth of big-ticket semiconductor networking acquisitions, such vendors are now becoming hot properties. Before announcing its landmark NetLogic purchase, Broadcom itself bought networking provider Teknovus in February 2010 for $123m (in an earnings call, Broadcom mentioned that Teknovus generated revenue in the single digits of millions, which implies a price-to-sales valuation far north of 10x). And in July, Intel announced that it was acquiring Fulcrum Microsystems for a price we hear was in the ballpark of $175m, or about 13x trailing sales.

Broadcom’s richly priced offer for NetLogic, which values the target at 9.2x trailing sales, likely won’t be the last deal in this sector. If you ask The Street, the next companies to get scooped up could be Cavium Networks (NASDAQ:CAVM) or EZchip Technologies (EZCH). Shares of both firms surged following Broadcom’s announcement. As for likely acquirers, we could point to deep-pocketed vendors Qualcomm (NASDAQ:QCOM) and Marvell Technology (NASDAQ:MRVL). With $10.7bn and $2.4bn of cash in their coffers, respectively, either company could easily digest Cavium, which currently sports a market cap of roughly $1.7bn.