California residents may have heard the news that Nvidia has acquired Mellanox for $125 per share. This translates to a 5.5 percent premium and a total purchase price of $6.9 billion. Although the price is thought to be fair for both parties, it is seen as a risky acquisition for Nvidia. It is thought that there may be limited opportunities for synergy between the two businesses.
However, it is believed that the transaction will work out if there is a long-term trend toward integrating GPU and other technology in data centers. One of the potential downfalls of the deal is that it could put Nvidia in direct competition with Cisco, Artista, and Intel. Cisco and Artista have about 66 percent of the market share for 10G+ connections. Furthermore, they also tend to do better at a larger scale, which could put Nvidia at a competitive disadvantage.
As of the time of the acquisition, Nvidia and Mellanox were not direct competitors even if they did share a similar space. Mellanox sells switches, cables and other hardware used to interconnect devices in a data center. Conversely, Nvidia sells software such a GPUs to gamers and others who need to process data. On a positive note, Mellanox has increased its gross margins, which may make it easier for the combined company to turn a profit.
When buying a company, it is important to know everything about it before the deal closes. An attorney may be able to help with due diligence or resolve any other problems that may arise. Accountants and other professionals may also be of assistance prior to closing on a transaction. Ideally, a business owner will know how to integrate the new asset into the existing corporate structure.