CMA approval of Broadcom/VMware deal ‘sets precedent’

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After UK regulators approved Broadcom’s US$69 billion acquisition of VMware, the Competitions and Markets Authority (CMA) has “set a precedent” for future M&A deals in the tech industry.

Claire Trachet CEO and founder of business advisory firm Trachet believes that these approvals could set a precedent for large tech deals to get the green light and the future of the M&A market for the remainder of the year.

The deal, which was first announced in May of last year was the subject of a lengthy, two-phase probe by the CMA.

An independent panel of regulators ruled that the merger would not hinder competition in the supply of server hardware components in the UK.

The acquisition has reportedly been cleared by the EU, Australia, Brazil, Canada, Israel, South Africa and Taiwan with the US expected to also approve in the coming weeks.

Last year, it was reported by Capacity that the potential deal could lead to price hikes from Broadcom.

“While the CMA has made headlines for blocking high-profile deals – including the likes of Microsoft-Activision and Adobe’s acquisition of Figma – the approval of Broadcom’s $69 billion merger signals optimism for larger tech deals seeking the CMA’s approval,” Trachet says.

“By clearing such a significant tech deal, the CMA sets a precedent for future M&A deals within the tech industry as it suggests regulators will be more receptive in allowing large-scale transactions to proceed if they determine that the deal will not substantially harm competition in the relevant markets, helping drive investor confidence.”

This, Trachet believes, also proves true with the CMA’s open approach to considering a reshaped deal with Microsoft-Activision, following the green light from the US.

With this now casting a spotlight on the UK, it is essential for the CMA to carefully consider more collaborative approaches in these deals to ensure a balance between preserving competition and allowing innovation in the sector.

Rise in approvals

Despite the M&A sector experiencing a slowdown this year, it appears the market is experiencing a rise in the number of deals being approved, Trachet adds.

“This comes now as investors are no longer frozen, as they know opportunities are presenting themselves and are ready to actively seize them.”

Trachet says that these companies also know that there are investment opportunities from growing industries like AI and cybersecurity, as well as struggling companies that will be eagerly looking to exit.

“In this sense, acquirers know they will be getting a bargain from low valuations, potentially leading to a flurry of M&A deals, presenting a more positive outlook for M&A activity.

“However, this poses an issue for companies getting less than they bargained for.  “In addition, there is a growing number of investors who are sat on a dry powder pile having paused investments due to uncertainty in 2022. 

This means there are significant opportunities on the horizon, and now is the moment to prepare and get deal ready as optionality will increase in H2 of this year.”

China hurdle

A key hurdle for the acquisition comes from China and the State Administration for Market Regulation (SAMR).

Last week, the country was blamed asIntel’s US$5.4 billion acquisition of Israeli-based Tower Semiconductor was scrapped.

This was “due to the inability to obtain in a timely manner the regulatory approvals required under the merger agreement”.

The merger passed antitrust reviews in the US and Europe but was delayed in China, which is a key market for Intel.

There is no indication of when a decision will be made regarding the Broadcom/VMware deal in China, but the Chip War between the US and China continues to escalate.

Earlier this month, US President Joe Biden signed an executive order that restricts US firms from investing in Chinese companies developing key tech.

China has placed export restrictions on key ingredients for semiconductors for which it is the largest global source.

Capacity will have more on this story as it develops.