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Is Cadence's Acquisition Strategy Headed in the Right Direction?

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Cadence Design Systems, Inc. (CDNS - Free Report) is a leader in the electronic design automation ("EDA") space. The company’s Intelligent System Design strategy aids users to transform design concepts into reality by offering computational software, hardware and IP.

In the last reported quarter, revenues of $1.061 billion topped the Zacks Consensus Estimate by 1.2% and increased 8.6% on a year-over-year basis. The figure surpassed the management’s guided range of $1.03-$1.05 billion. Expanding product portfolio as well as frequent product launches is a key catalyst.
 

CDNS Inorganic Growth Strategy on Point

The strategic acquisition approach has played a pivotal part in developing the company’s business in the last few years. Acquisitions aid in obtaining synergies leading to cost reduction and enhanced operational efficiency through the integration of resources. 

In June 2024, Cadence completed the acquisition of Switzerland-based BETA CAE, a leading provider of engineering simulation solutions. This acquisition will enhance Cadence's Intelligent System Design strategy by broadening its multiphysics system analysis offerings and helping the company enter into the structural analysis sector. Revenues for 2024 are now projected in the range of $4.6-$4.66 billion compared with the previous guidance of $4.56-$4.62 billion. It includes $40 million in revenues (at the midpoint) from the acquisition of BETA CAE. In January 2024, the company purchased California-based embedded software and system-level solutions provider Invecas, Inc.

The acquisition of Intrinsix (September 2023) further expanded Cadence’s footprint in the advanced nodes, radio frequency, mixed signal and security algorithms. CDNS purchased SerDes and memory interface PHY IP business from Rambus in September 2023.  In 2022, the company acquired OpenEye Scientific Software, Future Facilities, Pointwise and NUMECA. CDNS acquired OpenEye Scientific Software to augment its pharmaceutical and biotechnology market reach.

The buyouts of Future Facilities, Pointwise and NUMECA have aided in increasing the system analysis portfolio with more CFD solutions. The other significant acquisitions made by the company include Integrand Software, AWR Corporation, Tensilica and InspectAR Augmented Interfaces.

Acquisitions not only have bolstered CDNS’ product portfolio but have also helped the company to expand its geographical footprint. These acquisitions have aided in securing innovative technology, intellectual property and talent pool which is imperative for sustaining momentum in a highly competitive landscape.
 

Acquisition Strategy Has Its Pitfalls

Overall, while buyouts can be a sound strategy, these come with their own set of drawbacks like integration challenges. Acquisitions affect the balance sheet in the form of high levels of goodwill and intangible assets adding to the risk of investing in the company. CDNS’ goodwill and intangible assets totaled $3.082 billion or 42.7% as of June 30, 2024.
 

Acquisition Strategies of CDNS’ Peers

The pending acquisition of ANSYS (ANSS - Free Report) by Synopsys (SNPS - Free Report) is likely to amp up competition in the EDA space for all players including Cadence and Keysight Technologies (KEYS - Free Report) . 

In January 2024, Synopsys announced a definitive agreement to acquire ANSYS in a deal valued at $35 billion. This deal reflects an implied per-share consideration of $390.19 and represents a premium of about 29% over Ansys' closing stock price on Dec. 21, 2023. The deal is anticipated to close in the first half of 2025 and is subject to customary closing conditions, including receipt of outstanding regulatory approvals.

In May 2023, Ansys announced that its shareholders voted to approve the proposed acquisition by Synopsys. The terms of the agreement outlined that Ansys’ shareholders would receive $197 in cash along with 0.3450 shares of Synopsys common stock for each Ansys share. Ansys added that about 98.7% of the shareholders voted in favor of the acquisition, which represented approximately 83.8% of the total outstanding shares of the company’s common stock.

Synopsys’ acquisition of ANSYS is poised to produce a synergistic powerhouse, that is likely to revolutionize semiconductor design and testing processes, ushering in a holistic approach to innovation.

To stay competitive amid changing industry dynamics, Keysight Technologies, a leading provider of electronic design and test instrumentation systems, is focused on inorganic expansion. In September 2024, it acquired Synopsys’ Optical Solutions Group. The business focuses on developing optical design and analysis software tools. This transaction is expected to close in the first half of 2025, subject to customary closing conditions and the successful closing of Synopsys’ pending buyout of Ansys.

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