Silver Point is putting up $1 billion to help fund the deal, which is Avago's largest purhcase ever.
The payout for LSI comes to $11.15 per share. Shares of target rose $3.05, or 38.5%, to $10.96 on Monday following the news. Avago gained $4.34, or about 9.5% , to $49.99.
"First, the LSI position opens up an area where Avago has not been a major player, that is, until now, enterprise storage," said Avago CEO Hock Tan during a conference call pitching the deal to investors. The purchase will also boost Avago's offerings in wired infrastructure, one of the buyer's major product areas.
The target has nearly $2.4 billion in sales.
"It's a very attractive deal in the sense that Avago has a very nice operating model," said D.A. Davidson & Co. analyst Tom Diffely.
LSI's margins are in the high teens to low 20% range, the analyst noted, whereas Avago's margins are around 30%.
The buyer is domiciled in Singapore, and has a 5% tax rate.
"If they can go in there and cut a couple hundred million on the SGA and R&D side of the business, the accretion is going to be very strong," Diffely said.
Silver Lake and Kohlberg Kravis Roberts purchased Agilent Technologies Inc.'s semiconductor products group in 2005 for $2.6 billion, and renamed the business Avago. Silver Lake invested about $392 million in the LBO.
The PE firms took Avago public in 2009.