Part 4: Expanding Scope

Marvell First Considers M&A 

Murphy and his team delivered on their plan within six months, significantly ahead of schedule. With the refocused, streamlined business, Marvell had more than doubled in value over the course of just a year, from a $3 billion to $3.5 billion company to a valuation of around $8 billion. With this momentum driving Marvell, Murphy felt that the company needed to get bigger in networking. He started considering M&A opportunities. 

Integrating Two Very Different Companies

Marvell announced the acquisition in July 2018. From the onset, both management teams framed the integration as a merger, although technically Marvell was acquiring Cavium. This was very important from a cultural perspective. As Murphy put it, Marvell wanted to avoid seeming “arrogant” or as if they were going to acquire Cavium and “cut it into pieces that would shatter all over.”

Marvell Priorities 2016 Onward​

One Marvell

During the initial acquisition conversations with the board, Murphy’s ideas met with some opposition. At the time, Marvell was trading at 12-13x earnings, while Cavium was trading at 18-20x earnings. Murphy recalled that the board told him it seemed a stretch, for a low-multiple company to buy such a high-multiple company. Even if the sale went forward, there was widespread fear that the overall multiple would fall upon completion of the deal, destroying all value. 

Ultimately, the acquisition exceeded expectations in terms of the value it was able to create. At the time Marvell’s enterprise value was around $8 billion, while Cavium’s value was around $4 billion. Post acquisition, Marvell’s enterprise value was as high as $18 billion.

The new Marvell was positioned for depth and focus which would allow it to outsell many of its competitors. 

Moreover, under the new leadership, Marvell consistently demonstrated financial and operational improvements. The company went from gross margins in the low 50s to figures in the mid-60s.