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Synopsys (SNPS) to Acquire Simulation Software Maker ANSYS
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Synopsys (SNPS - Free Report) put all speculations to rest on Tuesday by announcing a definitive agreement to acquire the engineering simulation software company ANSYS (ANSS - Free Report) in a deal valued at $35 billion. The agreement involves a cash and stock transaction, with ANSYS shareholders receiving $197.00 in cash and 0.3450 shares of Synopsys common stock for each ANSYS share.
The cash and stock transaction signifies an implied per-share consideration of $390.19, representing a generous 29% premium over ANSYS's closing stock price on Dec 21, 2023, the day when media reported a possible deal between the two companies. The transaction is expected to close in the first half of 2025, with ANSYS shareholders owning around 16.5% stake in the combined entity.
Synopsys plans to fund the $19 billion cash component through a mix of existing cash reserves and debt financing and the remaining $16 billion through fully committed debt financing.
ANSYS shares experienced a slight pullback following the initial surge after the reports of a potential sale. However, Synopsys shares rose 3.1% in response to the acquisition news. Over the past year, SNPS and ANSS stocks have soared 51.8% and 30.1%, respectively.
One-Year Price Performance
Image Source: Zacks Investment Research
Strategic Synergy for Technological Prowess
The merger between Synopsys and ANSYS holds profound implications for the semiconductor landscape. Synopsys, a stalwart in electronic design automation (EDA), and ANSYS, renowned for its engineering simulation software, are poised to create a synergistic powerhouse. This strategic alliance aims to revolutionize semiconductor design and testing processes, bringing about a holistic approach to innovation.
Synopsys and ANSYS bring complementary strengths and growth opportunities. The combined entity aims to enhance Synopsys' Silicon to Systems strategy, particularly in adjacent areas like Automotive, Aerospace and Industrial. This move will expand Synopsys' customer base and product suite. The acquisition positions Synopsys to cater to a broader market, spanning from semiconductors to complex machinery and automation, fueled by the growing influence of artificial intelligence.
The merged entity stands poised to dominate the semiconductor and engineering simulation markets. By providing integrated solutions that cater to the intricate demands of contemporary technological advancements, the Synopsys-ANSYS partnership aims to outpace competitors. This comprehensive offering positions the merged entity as a one-stop destination for semiconductor and product development requirements.
The merger is anticipated to strengthen Synopsys' financial profile, with expectations of industry-leading, double-digit growth. Cost synergies of approximately $400 million are expected within three years post-closing and revenue synergies of around $400 million within four years. It also anticipates revenue synergies to reach approximately $1 billion in the long run.
Additionally, the ANSYS acquisition will increase Synopsys’ total addressable market by 50% to $28 billion, driven by megatrends demanding the fusion of electronics and physics across industries. The combination is expected to expand Synopsys’ non-GAAP operating margin by 125 basis points (bps) and unlevered free cash flow margin by 75 bps within the first full year post-closing.
Industry-Wide Consolidation Trends
The semiconductor industry has witnessed a prolonged trend of consolidation, driven by factors such as increasing chip production costs and the quest for market dominance. Strategic mergers and acquisitions have become a go-to strategy for companies seeking greater market share, cost efficiency and scale economies.
One of the most monumental acquisitions over the past year in the space was the completion of the VMware acquisition by Broadcom (AVGO - Free Report) in November 2023 in a deal worth $69 billion. VMware is a pioneer in virtualization software that consolidates applications and programs on a smaller number of servers. It will help Broadcom tap the hybrid cloud market.
Prior to this, in May 2023, Qualcomm (QCOM - Free Report) entered into a definitive agreement to buy Autotalks Ltd. — an Israel-based maker of chips used in crash-prevention technology in vehicles. The company intends to integrate Autotalk’s technology into its assisted and autonomous driving product.
These industry-defining acquisitions highlight the industry's transformative landscape. Investors are attuned to these dynamics, eyeing potential opportunities arising from market reactions to merger and acquisition announcements. In the semiconductor sector, such developments often lead to substantial market shifts, creating avenues for investors to capitalize on emerging trends.
Image: Shutterstock
Synopsys (SNPS) to Acquire Simulation Software Maker ANSYS
Synopsys (SNPS - Free Report) put all speculations to rest on Tuesday by announcing a definitive agreement to acquire the engineering simulation software company ANSYS (ANSS - Free Report) in a deal valued at $35 billion. The agreement involves a cash and stock transaction, with ANSYS shareholders receiving $197.00 in cash and 0.3450 shares of Synopsys common stock for each ANSYS share.
The cash and stock transaction signifies an implied per-share consideration of $390.19, representing a generous 29% premium over ANSYS's closing stock price on Dec 21, 2023, the day when media reported a possible deal between the two companies. The transaction is expected to close in the first half of 2025, with ANSYS shareholders owning around 16.5% stake in the combined entity.
Synopsys plans to fund the $19 billion cash component through a mix of existing cash reserves and debt financing and the remaining $16 billion through fully committed debt financing.
ANSYS shares experienced a slight pullback following the initial surge after the reports of a potential sale. However, Synopsys shares rose 3.1% in response to the acquisition news. Over the past year, SNPS and ANSS stocks have soared 51.8% and 30.1%, respectively.
One-Year Price Performance
Image Source: Zacks Investment Research
Strategic Synergy for Technological Prowess
The merger between Synopsys and ANSYS holds profound implications for the semiconductor landscape. Synopsys, a stalwart in electronic design automation (EDA), and ANSYS, renowned for its engineering simulation software, are poised to create a synergistic powerhouse. This strategic alliance aims to revolutionize semiconductor design and testing processes, bringing about a holistic approach to innovation.
Synopsys and ANSYS bring complementary strengths and growth opportunities. The combined entity aims to enhance Synopsys' Silicon to Systems strategy, particularly in adjacent areas like Automotive, Aerospace and Industrial. This move will expand Synopsys' customer base and product suite. The acquisition positions Synopsys to cater to a broader market, spanning from semiconductors to complex machinery and automation, fueled by the growing influence of artificial intelligence.
The merged entity stands poised to dominate the semiconductor and engineering simulation markets. By providing integrated solutions that cater to the intricate demands of contemporary technological advancements, the Synopsys-ANSYS partnership aims to outpace competitors. This comprehensive offering positions the merged entity as a one-stop destination for semiconductor and product development requirements.
The merger is anticipated to strengthen Synopsys' financial profile, with expectations of industry-leading, double-digit growth. Cost synergies of approximately $400 million are expected within three years post-closing and revenue synergies of around $400 million within four years. It also anticipates revenue synergies to reach approximately $1 billion in the long run.
Additionally, the ANSYS acquisition will increase Synopsys’ total addressable market by 50% to $28 billion, driven by megatrends demanding the fusion of electronics and physics across industries. The combination is expected to expand Synopsys’ non-GAAP operating margin by 125 basis points (bps) and unlevered free cash flow margin by 75 bps within the first full year post-closing.
Industry-Wide Consolidation Trends
The semiconductor industry has witnessed a prolonged trend of consolidation, driven by factors such as increasing chip production costs and the quest for market dominance. Strategic mergers and acquisitions have become a go-to strategy for companies seeking greater market share, cost efficiency and scale economies.
One of the most monumental acquisitions over the past year in the space was the completion of the VMware acquisition by Broadcom (AVGO - Free Report) in November 2023 in a deal worth $69 billion. VMware is a pioneer in virtualization software that consolidates applications and programs on a smaller number of servers. It will help Broadcom tap the hybrid cloud market.
Prior to this, in May 2023, Qualcomm (QCOM - Free Report) entered into a definitive agreement to buy Autotalks Ltd. — an Israel-based maker of chips used in crash-prevention technology in vehicles. The company intends to integrate Autotalk’s technology into its assisted and autonomous driving product.
These industry-defining acquisitions highlight the industry's transformative landscape. Investors are attuned to these dynamics, eyeing potential opportunities arising from market reactions to merger and acquisition announcements. In the semiconductor sector, such developments often lead to substantial market shifts, creating avenues for investors to capitalize on emerging trends.
Currently, Synopsys, ANSYS, Broadcom and Qualcomm each carry a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.