Marvell today announced that it will acquire Innovium in an all stock deal for $1.1 billion. Crunchbase data shows that the startup raised more than $400 million to make cloud-optimized networking ethernet switches.Matt Murphy, president and CEO of Marvell, sees Innovium in a complement to the $10 billion Inphi purchase last year. This gives the company, which makes copper chips, more ways for it to work across modern cloud data centres.Marvell CEO Matt Murphy stated that Innovium is a solid cloud data center merchant switch silicon provider and has a proven platform. He also said that they look forward to working closely with their talented team, who have a track record of delivering multiple generations highly successful products.Rajiv Khemani (Innovium CEO and founder) shared a familiar story about a startup CEO who saw the sale as a way for it to grow faster as part of an organization larger than it could alone. In a blog post, he said that Marvell's scale, leading technology platform, and complementary portfolio could help accelerate our growth. This would allow us to deliver breakthrough switch silicon for cloud and edge.According to PitchBook data, the company was founded in 2014. It raised more than $143 million last fiscal year, with a post-money valuation of $1.3billion. Given the valuation, is this a fair deal?A company will not sell for less than its last value to investors. Sometimes, these deals may still be profitable for the early investors of the selling concern. TechCrunch does not have access to the Innovium captable and any downside protection that its investors may have included in their deals with it. These measures could tilt the value of the sale more towards the final investors. This is often done at the expense or employees of its previous backers.The Innovium deal shouldn't be viewed as a failure. It is remarkable to build a company with a net equity value of over $1 billion. In enterprise value terms, the deal seems to be slightly less. Enterprise value, in business terms, is a useful way to determine the true cost of acquisitions. Innovium's case, an extensive cash position (Innovium cash and exercise proceeds) at closing of $145 million lowered the transaction cost to $955 million.We believe that although the sale may not be the result Innoviums had hoped for it is still a lucrative deal for early workers and investors. In today's market of mega-rounds or surfeit unicorns an exit above $1 billion in equity terms is viewed as disappointing in all terms. Innovium is being sold for approximately the same price as Facebook paid for Instagram 2012, which was so big that it dominated technology headlines all over the globe.With so much capital today, private valuations have soared and mega deals are plentiful. Recent rounds north of $100m, similar to Innoviums 2020-era $143 million round can provide companies with high valuations and a narrow path ahead of them to meet those higher expectations.What is the likely outcome? It could have been that Innovium had more cash than it was able to spend. Or perhaps it needed a larger partner to better serve its market. Innovium was able to scale up with its expected revenue of $150 million for Marvells fiscal 2023. It could have grown as an independent, private company and stagnated after its last round.A billion-dollar exit is still a billion-dollar exit. The deal is expected close before the end of 2012. The deal has been approved by both companies boards, but it must still clear closing hurdles such as approval by Innoviums stockholders.
