In a deal that appears to have taken many, including yours truly, by surprise. The technology company Avago has announced that they will be purchasing LSI [NASDAQ:LSI] for a sum of $6.6 Billion in cash, one of the biggest technology acquisitions of the year. What is the most interesting thing about this deal is that Avago is paying for LSI purely in cash and the fact that multiple banks have come in on the deal in order to make it happen. Frankly, looking at Avago’s product portfolio, an LSI acquisition makes little to no sense, until you realize that breadth of Avago’s technology portfolio and their shrinking business in the mobile sector as RF front-ends become more and more integrated.

Avago [NASDAQ:AVGO] itself is a Singaporean company that makes things ranging from fiber optic connectors and ASICs to LED displays and RF and microwave components. The company’s market cap is three times the size of LSI’s at $12 billion, which makes the acquisition a significant one for both companies as it will drastically shift Avago’s revenue and earnings mix. LSI has a pretty strong position in the market and many people that have been watching the storage space have noted LSI’s success and growth. However, I don’t believe that many buying into LSI expected to be earning their money on the stock in the form of a cash buyout. Especially since many people haven’t heard of Avago, considering it’s off-shore origins.

Prior to the announcement, LSI’s stock and market cap was around $4.3 billion, which represents a nearly 50% premium over the stock’s price at the time of $7.91. LSI’s stock is currently at $10.96 representing a jump of over $3.00 per share and a 38% increase on the day. At $12 a share, Avago is paying quite the hefty premium, but considering LSI’s momentum and growth it totally makes sense. They have one of the few SSD controllers on the market with wide market adoption with the SandForce controllers and they also have one of the best RAID controllers on the market with their MegaRAID line of controllers. With these two technologies combined, I suspect that LSI’s future is more than strong, not even considering their logic that they supply to companies like Seagate that use them in their tens of millions of hard drives every year.