CARY – Wall Street analysts are reacting positively to a possible acquisition of Cary-based SAS by tech conglomerate Broaadcom. But if a deal is made cuts would follow or more profits generated to justify the deal, say analysts.
Such talk from analysts could help Broadcom if it decides to make a deal and has to borrow billions to fund an acquisition – or issue more stock to generate cash for a buyout. If Wall Street THINKS a deal can work, that’s a positive, one experienced executive used to dealing with the Street and financial institutions, told WRAL TechWire.
A day after news broke about a deal worth as much as $20 billion for SAS, analysts see positives for Broadcom in such a deal. Broadcom shares have only moved slightly, however. SAS, a privately held firm and a global leader in analytics software, won’t comment about possible sale talk. Broadcom has yet to comment.
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“Broadcom’s acquisition strategy in software has historically focused on driving cost cuts to achieve greater profitability,” Citi said in a note. “We believe there could be significant cost cut potential at SAS with the company barely profitable in 2020 and spending 37% of revenue ($1B-plus) on annual R&D.”
SAS has acknowledged that revenues have been flat for five straight years yet the company says it remains profitable.
Morgan Stanley took a more conservative view, noting a deal “would fit with Broadcom’s overriding strategy to develop deeper relationships with large enterprises” However, the Broadcom software strategy – built through acquisitions that were added to iaugment ts semiconductor arsenal – “remains a key debate for the stock.”
BMO Capital Markets said in a note that a deal “fits into the profile of the kind of business Broadcom would be interested in.”
Truist Securities reported that a deal “would be strategically consistent for AVGO,” referring to Broadcom’s stock symbol.
Should Broadcom raise debt for a SAS buy, net leverage would remain “manageable” and said a deal would be accretive to both earnings and free cash flow, according to TheStreet.com.
Reporting on the talks, Bloomberg news noted that a SAS deal “would extend Broadcom Chief Executive Officer Hock Tan’s expansion into software. Tan, who already made his company one of the biggest semiconductor makers by market value via a string of deals, surprised investors with the acquisition of CA Technologies for $19 billion in 2018 then followed up with the purchase of Symantec Corp.’s enterprise security business for $10.7 billion in 2019.”