Almost two years since their latest acquisition,
) has announced its plans to acquire Magma Design Automation
Inc., a chip design software manufacturer. The total transaction is
expected to cost $7.35 per share in cash, or a total enterprise
value of $507.0 million.
The boards of directors of both the companies have approved the
acquisition, and the transaction is currently subject to Magma
shareholders' vote and regulatory approvals. The deal is expected
to close by the second quarter of 2012.
The consideration is a 40.0% premium to the stock's 50-day
moving average of $5.25 per share, although this is still a
discount of 15.6% to the 52-week high of $8.50 reached on July
We believe that the acquisition will be accretive for Synopsys,
as Magma's business operations are similar to that of Synopsys and
will facilitate improved performance, area and power while reducing
turnaround time and costs on complex ICs. This new collaboration
will help chip designers to gain access to the advanced technology
required for silicon success at 28 nanometer and below.
Synopsys plans to fund the acquisition through a combination of
cash and debt and is expected to announce further details regarding
the completion of the deal later. Presently, complexities of
semiconductor design are increasingly being solved by advanced
The recent deal marks the company's first acquisition after a
long gap. Back in 2010, the company completed the acquisition of
Virage Logic Corp. for $12.0 per share, or a total consideration of
approximately $315.0 million.
Virage Logic provides semiconductor intellectual property (
) for the design of complex integrated circuits. In a way, this
acquisition has supplemented Synopsys' Designware platform, as well
as its Intellectual Property product category.
This apart, the company has exhibited good operating performance
and sound cost control in the last reported quarter. The
acquisition of Magma Design, is expected to boost profitability,
but integration risks persist.
The company's first quarter 2011 guidance is encouraging.
Although Synopsys is gaining traction from new products and
acquisitions we believe this will take some time to produce
favorable results. Besides, the company is also facing competition
Cadence Design Systems
The company currently has a Zacks #3 Rank (short-term Hold
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