LSI Acquired by Avago for $6.6 Billion, in Cash and Loans

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It is one of the most surprising and acquisition of the year and at the same time, at 6.6 $billion, one of the highest deal in the storage history. More than $6 billion M&As in Storage Industry

* Company not only in storage This year, the highest amount paid in storage was $695 million by WD to get Virident and $6.6 billion is more than the global amount of all known storage acquisitions in 2012, $6.9 billion. LSI and Avago were discussing since six months with Silver Lake, but the secret was well kept. Even if we have heard about this rumor, we couldn't publish it because this deal was unbelievable as Avago is not known at all in the storage indusry. On the more than 31,000 news published on StorageNewsletter.com since 2007, only three concerned Avago's products, about ... FC and fiber-optic transceivers. And the buyer never was in enterprise storage. We could understand that Intel, Broadcom, SanDisk, Seagate or WD could be interested by LSI, not Avago. For sure, both Avago and LSI are members of the worldwide chip market that is consolidating following the deal, but for completely different applications. And LSI has other activities, not just chips. $6.6 billion is not a small price to get LSI, 2.8 times the annual revenue of the acquired firm and a 41% premium over its stock price. LSI's market cap jumps from around $4.3 billion to reach now $5.97 billion. Who is Avago? It's a Singapore-based chip manufacturer, with also HQs in San Jose, CA, that was founded in 1961 as an electronics division of HP. Avago turned already to Silver Lake to finance this deal, acquiring the company and then, in 2005, becoming part of Agilent, former semiconductor arm of HP, before taking it public three years later. Silver Lake sold the last of its holdings in 2012, but retained a seat on Avago's board. The transaction was one of the most lucrative in Silver Lake's history, generating five times the initial investment. Avago makes semiconductors used by Apple and Samsung Electronics for smartphones and sells over 6,500 products to OEMs in communications (wired and wireless), industrial, electronics, Half of its business is in various handset and base station RF chips and the rest in a mix of mainly optical components. Avago's Financial Results (in $million, FY ended in October)

Note: The company's cash balance at the end of FY13 was $985 million, compared to $863 million at the end of the prior quarter. Avago's acquisition of LSI will create a business of around $4.9 billion in annual revenue and provide Avago with an excellent historical know-how in storage. The 32-year-old LSI focuses on making chips that control networks, especially storage for data centers, and also for mobile networks. For 3Q13 ended last September, sales reached $607 million, with server and storage semiconductor revenues, which include products from server rate adapter and software, flash (SandForce), SAS, SAN and HDD businesses, were $470 million. The company estimates that nearly 50% of revenues come from data center IT spending. LSI's Financial Results (in $million, FY ended in December)

* estimation Conclusion: Is there something else behind this enormous deal? Note that Silver Lake is a big part of it. This company is in technology investing with approximately $20 billion in combined assets under management and committed capital. Its specialization covers multi-billion dollar financial operations. Remember the huge one with Seagate becoming private and back to public which let to big profits. Maybe Silver Lake is using Avago to integrate LSI, reorganize it and then offer it to Wall Street to realize once more an excellent financial operation. But if Avago keep LSI, it will have better to keep its executives to have an understanding of the enterprise storage business. Document: All LSI's acquisitions (in $ million)

Note: NetApp acquired in 2011 for $480 million storage disk subsystems of LSI (Engenio).