Broadcom announced it will acquire VMWare for $70b, the largest software acquisition in history.
Remarkably, this goliath union transpires during the deepest bear market of the last ten years. This merger also suggests a wave of acquisitions may punctuate 2022, in particular, take-privates.
Public companies can’t hide from the 70% collapse in multiples the way startups can. Publics are marked to market daily. Big acquirers walking through the aisles of the stock exchanges are staring at buy-one-get-one-free specials.
Software companies haven’t been this cheap to buy for a decade. VMWare traded at a 4.4x enterprise-value-to-forward-revenue (EV/NTM) multiple down from 7.3x in 2019, a fall of 65%, consistent with its peers by growth rate.
|Ticker||Growth Rate||EV/NTM Multiple|
MW traded at 4.4x before the acquisition. The sale pushed it to 6.6x
If VMWare is attractive, shouldn’t these other companies entice a cash-rich acquirer? Or a flush private equity firm desirous of a SaaS company’s consistent cash flow? Interest rates may be increasing, but they’re still low enough to make leveraged buy-out math work.
Plus, publics are “always on sale.” Anyone can submit a valid offer. Even more, public company boards are subject to intenser scrutiny and more frequent shareholder lawsuits, which makes them likelier to consider a sale, even if there’s just one offer.
Look no further than Elon’s on-again, off-again pursuit of Twitter as a real-time example of the tight-rope public companies must navigate after receiving unsolicited bids; and the destabilizing winds that a lack of other suitors and oppressive shareholder scrutiny bring. Acquisition targets are weakened after the market hears of an offer, and weaker still after they agree to terms and await a definitive agreement.
In this environment, with valuations plummeting, plus uncertainty and fear rampant in the market, we might see a vibrant M&A market for public companies and perhaps the reemergence of the Barbarians at the Gate, the corporate raiders.
Europe`s female Business Angel of the year 2020 & 2021. Simone Brummelhuis and Lurdes Gramaxo has been awarded with the “Golden Aurora Award”.
The Fourth Australian Angel Awards announces Susan Oliver to be the Angel of the Year 2021. Read more about the Smart Investor.