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Will the ‘Big 3’ EDA Vendors soon become the ‘Big 2’ ??
Location: Blogs Russ Henke |
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| Posted by: Russ Henke |
6/29/2008 7:43 AM |
Mergers & Acquisitions are hardly rare in the world of Computer Aided Engineering (CAE) or Computer Aided Design (CAD). Indeed, seldom does a quarter pass without one Electronic Design Automation (EDA) vendor buying another. The same is true in the Mechanical CAE and Mechanical CAD/PLM industries.
Indeed, being acquired by one of the top three vendors in EDA or in MCAD is a favorite exit strategy for small start-ups that develop a specialized or breakthrough technology. This exit path is especially attractive as the IPO market for venture-backed companies dries up.
While EDA companies usually buy smaller EDA companies, and MCAD companies likewise, it’s not unheard of for crossover to occur. For example, MCAE vendor ANSYS recently acquired EDA vendor ANSOFT.
More unusual, however, is for one of the leading EDA or MCAD vendor companies to acquire one of the other members of their respective oligopolies.
Such a possibility recently surfaced in the news, wherein CADENCE (San Jose, CA) is reportedly pursuing MENTOR GRAPHICS (Wilsonville, OR). CADENCE, SYNOPSYS, and MENTOR are currently the Big 3 EDA vendors, in that order size-wise. Founded in 1981, MENTOR reported revenues in 2007 of about $850 million. CADENCE was founded in 1988 and sported revenues of more than $1,600 million in 2007.
Rumor has it that CADENCE approached MENTOR on a friendly basis some months ago regarding an all-cash acquisition, but CADENCE was rebuffed. One June 17, 2008, CADENCE revealed that its offer to MENTOR was for $16 per share, a 30% premium over MENTOR’s closing price on June 16. Industry sources say CADENCE is now pursuing a hostile takeover of MENTOR.
MENTOR issued a statement rejecting the CADENCE offer on two grounds - that it was too low and that the merger would have trouble passing federal antitrust review. "For these and other reasons, our board unanimously rejected the proposal," wrote MENTOR CEO Dr. Walden Rhines. (Dr. Rhines joined MENTOR in 1993 from TI).
For its part, CADENCE downplayed the possible antitrust issue. CADENCE also said the merger “would lower software costs and benefit electronics makers because CADENCE and MENTOR could “share” sales and administrative staffs”. Further, CADENCE CEO Mike Fister argues that the software products of CADENCE and MENTOR are “complementary”. (Mr. Fister joined CADENCE in 2004 from Intel).
It would be highly unusual if this merger, like many others, did not result in significant numbers of employee layoffs, should it eventually be consummated. Moreover, there are several product lines at both EDA vendors that are arguably directly competitive.
But hey, hostile takeover attempts are the signs of our times (think Microsoft-Yahoo, Staples-Corporate Express, Electronic Arts-Take Two, InBev-Anheuser Busch, …).
Indeed, it was reported in the Portland Business Journal on June 24, 2008, that MENTOR itself is pursuing British company Flomerics Group PLC with an offer that Flomerics' board ironically says is too low. Flomerics is a vendor of Computational Fluid Dynamics (CFD) simulation software. MENTOR extended until July 2, 2008 its offer of about $47.1 million for Flomerics, whose market cap on June 24 was $47.8 million. Flomerics' board has urged shareholders to reject MENTOR’s offer. MENTOR already owns almost 30% of Flomerics, having purchased just over 20% of Flomerics' outstanding shares in March 2008.
Oh yes, there is one other complication. Flomerics revealed it is also in talks with AUTODESK (San Rafael, CA). Flomerics announced on June 12, 2008 that AUTODESK had informed the Flomerics board that any offer would be all cash.
All this M&A talk sounds like fun! Except maybe for the employees who may lose their jobs, and except maybe for the vendors’ customers who may face unwelcome product transitions.
Stay tuned!
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Re: Will the ‘Big 3’ EDA Vendors soon become the ‘Big 2’ ?? July 3 update |
By Russ Henke on
7/3/2008 9:36 AM |
Mentor Graphics Corporation announced on June 30, 2008 that its Board of Directors had retained Goldman Sachs and Merrill Lynch as financial advisors with respect to Cadence Design Systems, Inc.’s unsolicited written proposal to acquire all outstanding shares of Mentor at a price of $16.00 per share. In addition, Latham & Watkins LLP is acting as legal advisor to Mentor Graphics.
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