Broadcom recently announced they would no longer be pursuing the acquisition of SAS Institute. This announcement surprised many in the tech industry, as it had been widely expected that Broadcom would be acquiring the popular analytics and data visualisation software company.
In this article, we will look at
- why Broadcom decided to no longer pursue the acquisition,
- and the impacts this decision may have on the tech industry.
Overview of Broadcom and SAS Institute
Broadcom, a global technology leader, specialises in semiconductors for wired and wireless communications. Founded in 1973 and headquartered in San Jose, California, Broadcom is based in the heart of Silicon Valley. With over $20 billion in annual revenues and over 6,000 employees worldwide, Broadcom delivers a broad portfolio of products providing end-to-end solutions for computing and networking applications. In addition, the company has continued to innovate processes for industry-leading system design with strong commitment to customer service.
SAS Institute is a leader in analytics software and services that help organisations make better decisions faster. Headquartered in Cary, North Carolina, SAS Institute boasts the largest private sector research and development budget of any software company at $1 billion annually. Established in 1976 by Jim Goodnight and Jane Helwig with just 4 employees, SAS Institute now employs 14,000 people around the world with customers across many industries such as banking & financial services, healthcare & life sciences, government agencies or non-profits.
SAS Institute’s global reach is also seen through its 9 offices across 8 countries including:
- United Kingdom
- United States
Reasons Behind Broadcom’s Decision
Broadcom’s decision to no longer pursue talks to acquire SAS Institute came as a surprise to many. With the acquisition of SAS Institute, Broadcom would have a strong foothold in the analytics software market. But why did Broadcom walk away from the deal? Let’s delve deeper into the reasons behind this move.
In February 2019, Broadcom had announced plans to purchase SAS Institute for a reported $10 Billion ($4.68 Billion net cash). However, the deal was cancelled in May of the same year due to antitrust concerns.
Broadcom decided to terminate their bid for SAS Institute based on their assessment that the acquisition would not pass muster with regulators due to competition law issues. A close examination of the strategies and businesses implemented at both companies uncovered similar products providing competing solutions and overlapping customers. In such cases, there is potential for anti-competitive restraints leading to higher prices or reduced quality of service. This would be judged unacceptable by regulatory bodies and lead to antitrust investigations or legal actions that could disrupt normal operations within both organisations.
Additionally, since anti-competitive behaviour works against consumer welfare by artificially raising prices, regulators are inclined to intervene to ensure competitive markets. Furthermore, government enforcement against monopoly powers can help protect other businesses from unfair competitive practices such as market foreclosure and exclusive contracting agreements that favour one company over another without reasonable factual basis or potential predatory behaviour towards smaller businesses seeking an equal playing field for competition.
Therefore, despite promises of cost savings advertised as benefits benefitting either company through future mergers, Broadcom ultimately chose not move forward with the acquisition of SAS Institute under a watchful eye from regulatory authorities wary of any attempts at concentration within industry segments or regions that could enable anticompetitive activity inferring harm for consumers or so-called “monopsony” earnings in which buyers have too much control over pricing in a particular market segment by overly advantaging the interests of the buyer over those of its sellers – often resulting in cost reduction battles greatly disadvantageous toward vendors attempting proper reasonable pricing models applicable between them and their buyers.
Broadcom recently announced that it will no longer pursue the software analytics firm SAS takeover. With an all-cash deal estimated to be valued at around $8.5 billion, it was implied that regulatory hurdles were among the key driving factors for Broadcom to back out of its original offer.
At the time of publication, the Broad committee noted, “The company has determined that continuing with this acquisition does not make economic sense for BroadCom at this time”. This decision could have been impacted by the complexities regulators would have faced in reviewing such a massive acquisition. U.S antitrust policies protect competition, and any large merger or acquisition can spark concerns from regulators and competitors, resulting in extended approval delays or disallowances altogether. Generally, when the deal moves forward with approval, there is often a need for compromise by either one or both parties on aspects such as divestitures and/or other forms of concessions.
As prominent tech companies look to acquire smaller firms as an avenue for growth and expansion, they must pay close attention to how their plans may affect businesses across relevant markets. In addition to legal requirements these companies must also consider potential implications their actions may have on public opinion or market conditions even if deals do not require approval by regulatory agencies to carry out their operations without issue in the future.
Cost of acquisition
When Broadcom announced its acquisition of SAS Institute, the company provided several reasons for the move. Chief among them was the desire to expand its footprint in the cloud computing sector due to increasing customer demand for SAS’s suite of analytics products. However, Broadcom eventually walked away from its plan after realising it would come at a heavy cost. The US$7 billion purchase price would have been a significant investment given that Broadcom’s revenue in 2016 was only US$12 billion. Moreover, given that SAS Institute had recently done several acquisitions, Broadcom would have had to take on additional costs and complexity brought about by integrating their operations.
Furthermore, there was no guarantee that Broadcom could recoup the hefty sum it had planned to invest – either through direct cost savings or growth generated by access to SAS’s high-margin products and services portfolio – given the competitive nature of this space. Its competitor IBM Corporation (IBM), which is far larger than Broadcom in terms of market capitalization but similar in terms of revenues, has had difficulty achieving meaningful levels of success since acquiring The Weather Company for US$2 billion in 2016. Hence, investors were likely relieved when they saw discontinued plans for a large acquisition for which there were no clear-cut benefits.
Impact of Broadcom’s Decision
The decision by Broadcom to no longer pursue talks to acquire SAS Institute has generated a fair bit of discussion in the tech industry. This news has had a wide-reaching impact, from investors to employees.
In this article, we will take a close look at the various implications of Broadcom’s decision to drop out of negotiations with SAS Institute:
Impact on SAS Institute
Broadcom’s unexpected decision to withdraw its offer to acquire SAS Institute significantly impacted both companies.
For Broadcom, withdrawing its bid meant a significant financial cost; not only did it have to write off $212 million in expenses related to the failed acquisition, but it also had to contend with investor outrage over its failed attempt. Additionally, the company was forced to delay or cancel several planned initiatives to focus on reducing costs and boosting liquidity.
For SAS Institute, the proposed buyout from Broadcom represented more than a financial upside; it allowed the company to expand its market share and realise further growth opportunities. Despite these potential benefits, however, SAS Institute management ultimately rejected the deal due to concerns about how an acquisition could affect its existing business model.
Ultimately, both companies had much at stake due to this decision: SAS Institute believed that remaining independent gave them more control over their fate. At the same time, Broadcom felt that the proposed deal had not been sufficiently equated with a business benefit for them. Both companies were aware of either option’s potential costs and benefits but ultimately made decisions based on what they believed would be best for their businesses in the long term.
Impact on the tech industry
Broadcom’s decision to abandon acquiring the software company SAS Institute will likely deeply impact the tech industry.
- First and foremost, the collapse of this transaction puts Broadcom in a difficult situation considering they were in deep negotiations to purchase one of the biggest software companies in the world.
- This move also has implications for other major companies that had expressed interest in buying SAS Institute. It could widen the gap between technology giants such as Microsoft and Oracle and up-and-coming businesses seeking an opportunity to compete by acquiring a larger enterprise.
Furthermore, it appears Broadcom’s decision could be driven by its investors who were critical of their plans to purchase SAS Institute under their current market conditions. This makes other prospective buyers doubt whether it is a good idea to invest such massive amounts of money at this moment given that even large corporations such as Broadcom may not be ready or able to close such big deals.
Additionally, this move sparks doubt regarding investment strategies employed by private equity firms that are often willing to take risks while pursuing lucrative opportunities due to economic cycles or changing market environments – something Broadcom’s aborted acquisition of SAS could serve as an example against doing so. As such, its impact has been felt beyond simply Broadcom’s own decisions but may put into question general practices employed throughout the industry when investing in large enterprise acquisitions.
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