Why Broadcom’s Rumored $15-Billion Acquisition Of Symantec Makes Sense

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Symantec (NASDAQ:SYMC) shares jumped almost 14% over trading on Wednesday, July 3rd, following reports that it could potentially be acquired by Broadcom for $15 billion over coming weeks. The security software company saw its share price increase to over $25 for the first time since last May. Per Trefis estimates, Symantec’s shares have a fair value of $21 and a potential acquisition for $15 billion implies a premium of roughly 15% for the companies shareholders. Details about our price estimate are available in the interactive dashboard, Why Symantec Stock Soared, where you can modify forecasts to see the impact of changes on the company’s stock. Additionally, you can see more Trefis Technology company data here.

A Quick Look At Symantec’s Revenue Sources

Symantec makes money selling cyber-security products, solutions and services to corporates and retail customers. There are two sources of Symantec’s revenue ($4.7 billion in fiscal 2019 that ended in March 2019)

  • Enterprise Security (fiscal 2019 revenue of $2.4 billion, 51% of total): Revenues are derived from the sale of the company’s products offering threat- and information-protection across cloud and on-premise applications to corporate and government customers.
  • Consumer Security (fiscal 2019 revenue of $2.3 billion, 49% of total): Revenues are derived from the sale of products and services including Norton Security, LifeLock Identity Theft Protection and Norton Wi-Fi Privacy to individuals and small businesses.
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Symantec added $1.25 billion in total revenues from 2016 to 2018 (CAGR of 16%), but the top line shrank by $120 million in fiscal 2019.

Why Would Broadcom Want To Acquire Symantec?

  • A potential deal with Symantec would mark Broadcom’s second major acquisition of a software company after its $18.9-billion acquisition of mainframe software company CA Technologies last June
  • The deal could provide a much-needed shot in the arm for security software company Symantec, which has seen its fortunes decline considerably in the recent past
    • Revenues for Symantec’s Consumer Security business have declined steadily over recent quarters
    • The Enterprise Security business was also under pressure in Q1 due to technical issues in the company’s cloud product and a loss of business from small and medium enterprises
    • Another issue the company (and its stock) has had to content with over recent months is the spate of management exits
  • Broadcom could potentially realize sizable cost savings by merging Symantec with CA, and also improve the company’s focus on a specific set of clients in the long run (similar to what it did with CA).

An acquisition price of $15 billion works out to an offer value of just over $24 for Symantec’s stock. Notably, Symantec’s stock traded at around $28 in early 2018, so there is a significant upside potential for Broadcom from the acquisition in the long run.

Do not agree with our forecast? Create your own price forecast for the Symantec by changing the base inputs (blue dots) on our interactive dashboard.

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