Marvell Acquires Innovium for $1.1B - Cloud Ethernet Expansion

Marvell to Acquire Innovium in $1.1 Billion Deal

This morning, Marvell announced a definitive agreement to acquire Innovium for $1.1 billion in an all-stock transaction. Innovium, a startup that secured over $400 million in funding according to Crunchbase, specializes in the creation of networking ethernet switches designed for cloud environments.

Strategic Alignment with Inphi Acquisition

Matt Murphy, Marvell’s president and CEO, views Innovium as a synergistic addition following last year’s $10 billion acquisition of Inphi. This acquisition expands Marvell’s capabilities, particularly in serving modern cloud data centers, given its existing expertise in copper-based chips.

Marvell CEO Matt Murphy stated, “Innovium has proven itself as a leading provider of cloud data center merchant switch silicon, boasting a robust platform.” He further expressed enthusiasm for collaborating with Innovium’s skilled team, recognized for consistently delivering successful products.

Innovium CEO on the Acquisition

Rajiv Khemani, founder and CEO of Innovium, will continue as an advisor after the deal finalizes. He articulated a common sentiment among startup leaders – the acquisition provides a pathway to accelerated growth through the resources of a larger organization.

Khemani explained in a company blog post that combining Innovium’s data center portfolio with Marvell’s scale, technology, and complementary offerings will expedite their vision of delivering cutting-edge switch silicon for both cloud and edge computing.

Valuation and Deal Considerations

Founded in 2014, Innovium raised over $143 million last year, achieving a post-money valuation of $1.3 billion, as per PitchBook data. This raises the question of whether the current acquisition price represents a fair valuation.

Companies generally aim to be sold for at least their most recent valuation. However, deal structures can vary, potentially favoring later investors through downside protection mechanisms, sometimes at the expense of early investors and employees.

Deal Structure and Enterprise Value

Despite this, the Innovium deal shouldn't be considered a failure. Achieving a sale exceeding $1 billion in equity value is a significant accomplishment. The enterprise value, however, appears slightly lower.

Enterprise value provides a more accurate assessment of an acquisition's true cost. In Innovium’s case, a substantial cash reserve – estimated at $145 million at closing – reduced the net outlay to approximately $955 million.

Market Context and Expectations

While the sale may not fully meet the expectations of Innovium’s investors, it could still prove beneficial for early contributors. The current market, characterized by large funding rounds and numerous unicorns, often sets high expectations.

An exit exceeding $1 billion, while substantial, can be viewed as underwhelming in this environment. Interestingly, Innovium’s sale price is comparable to what Facebook paid for Instagram in 2012, a deal that was groundbreaking at the time.

Factors Influencing the Outcome

Several factors may have contributed to this outcome. Innovium might have found itself with excess capital and limited deployment opportunities, or it may have required a larger partner to enhance its market reach.

With projected revenues of $150 million in Marvell’s fiscal year 2023, Innovium demonstrated successful scaling. However, growth may have plateaued following its last funding round.

Deal Completion and Approvals

Ultimately, a billion-dollar exit remains a significant achievement. The deal is anticipated to close before the end of the year, pending approval from both company boards and Innovium’s shareholders.

Standard closing procedures, including shareholder approval, must be completed before the acquisition is finalized.