Avago's Aggressive Dealmaking from Its Singapore HQ
4:38 PM ET 5/27/15 | Dow Jones

By Maureen Farrell

Investors seem to have an insatiable appetite for Avago Technologies Ltd.'s aggressive deal making.

Shares of the Singapore-based chip maker shot up more than 6% in afternoon trading Wednesday after the WSJ reported that Avago in advanced talks to acquire rival Broadcom Corp. Before the WSJ's report, Broadcom was valued at roughly $28 billion.

Should Avago close the deal, it would be its biggest ever in a long string of acquisitions. The company has grown its market cap and share price over the past six years through aggressive deal making, and at each step of the way, investors have rewarded the company.

Its most recent deal was in late February, when Avago announced an acquisition of networking company Emulex Corp. for about $606 million. The first trading day after that announcement, Avago's stock jumped nearly 15%, adding roughly $4.2 billion to its market cap.

It's been one of the more aggressive acquirers in the semiconductor sector the past two years Since 2013, it has purchased five companies in the U.S. valued at about $8 billion, including a deal to buy rival LSI Corp. for $6.6 billion. Yet in that span, its market cap is up more than $25 billion during the same time frame. This year, Avago's stock has jumped more than 40%.

Along the way, it's drawn comparisons to two other companies that have been closely watched for their aggressive deal making: Actavis PLC and Valeant Pharmaceuticals International Inc.

In the wake of Avago's deal for Emulex, Sachin Shah, a merger arbitrage strategist at Albert Fried & Co., called Avago the "Valeant of semiconductors."

All three companies have one key advantage in common that has helped them in the M&A race: A non-US address for their headquarters. Avago is based in Singapore and has a tax rate of roughly 4%; Valeant's headquarters is in Canada and Actavis' in Ireland.

The tax edge foreign companies has grown since the Treasury Department cracked down on inversions in September cutting the benefits for U.S. companies that bought smaller non-U.S. companies and moved to their target's lower tax regime. Since that crackdown, several non-U.S. companies in the pharmaceuticals industry have inked large deals to buy up U.S. competitors.

Actavis is the product of a tax inversion that occurred before the Treasury crackdown. Valeant, once a U.S. company, was acquired by Canada's BioVail Corp. in 2010. The combined company remained headquartered in Canada but took Valeant's name. Avago was not formed as an inversion, but it was also once part of a U.S. company, specifically Hewlett-Packard Co. Its former parent Agilent Technologies Inc. was spun out of H-P in 2005, and then Agilent sold what's now Avago to Silver Lake, KKR Co. and other investors in a $2.66 billion buyout in 2005.

Avago went public in 2009 and by then had its headquarters in Singapore, though the company has significant operations in Silicon Valley.

Correction: Valeant, once a U.S. company, was acquired by Canada's BioVail Corp. in 2010. The combined company remained headquartered in Canada but took Valeant's name. An earlier version of this post incorrectly said that Valeant was the product of a tax inversion.