Broadcom's acquisition of VMware! It's a great example to learn the art of acquiring companies without using one's own capital.
On May 26, 2022, chipmaker Broadcom announced that it would acquire cloud computing company VMware for $61 billion. The deal was one of the largest in the technology industry in recent years.
Broadcom financed the deal with a combination of cash, equity, and debt.
How was the deal structure?:
- The company raised $27 billion in cash from investors through a private equity offering.
- It also received $11 billion in debt from banks.
- The remaining $23 billion of the purchase price was paid in Broadcom stock.
The use of debt and equity financing allowed Broadcom to avoid using any of its own cash to finance the acquisition. This was important for the company because it allowed it to maintain its strong financial position.
The VMware acquisition was a complex transaction that involved a number of different financing arrangements. However, it is a good example of how companies can use debt and equity financing to acquire other companies without using any of their own cash.
Here is a more detailed explanation of the financing arrangements used in the VMware acquisition:
- Private equity offering: Broadcom raised $27 billion in cash from investors through a private equity offering. This is a type of investment in which a group of investors pool their money together to buy a stake in a company.
- Debt financing: Broadcom also received $11 billion in debt from banks. This is a type of financing in which a company borrows money from a bank and agrees to repay the loan, plus interest, over a period of time.
- Equity financing: The remaining $23 billion of the purchase price was paid in Broadcom stock. This is a type of financing in which a company pays for an acquisition by issuing shares of its own stock to the acquired company's shareholders.
The use of debt and equity financing allowed Broadcom to spread the cost of the acquisition over a number of years. This is important for companies because it allows them to avoid paying the entire cost of an acquisition upfront.
The VMware acquisition was a risky transaction for Broadcom. However, the company was able to finance the deal without using any of its own cash, which helped to mitigate the risk.
The use of debt and equity financing is a common practice in M&A transactions. This is because it allows companies to acquire other companies without using any of their own cash, which can help to improve their financial position.
Want 3 more similar examples??
- Acquisition of SolarWinds by private equity firm Clayton, Dubilier & Rice: In May 2021, private equity firm Clayton, Dubilier & Rice announced that it would acquire IT management software company SolarWinds for $15.3 billion. The deal was financed with a combination of cash, equity, and debt.
- Acquisition of Refinitiv by London Stock Exchange Group (LSEG): In September 2020, LSEG announced that it would acquire financial data company Refinitiv for $27 billion. The deal was financed with a combination of cash, equity, and debt.
- Acquisition of Anadarko Petroleum by Occidental Petroleum: In August 2019, Occidental Petroleum announced that it would acquire oil and gas company Anadarko Petroleum for $55 billion. The deal was financed with a combination of cash, equity, and debt.
These are just a few examples of recent M&A transactions where the buyer used none of their own capital. The use of debt and equity financing is a common practice in M&A transactions, and it is likely to continue to be used in the future.
And the most important thing! This same LBO strategy can be applied to smaller deals with sizes ranging from $500,000 to $10,000,000 and actually is what I do for a living.
I hope this information is helpful. Please let me know if you have any other questions.
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Sebastian H. Amieva
Mergers And Acquisitions Mentor / Investor / Globetrotter