By John Donovan
Synopsys yesterday (11/30/2011) announced that it has signed a definitive agreement to buy Magma Design Automation for $507 million, the largest acquisition in the EDA industry in many years. The acquisition will strengthen Synopsys’ position in both analog and digital EDA tools, at the same time removing a struggling competitor with whom it’s had a less than friendly relationship.
On the financial side Magma represents an easy acquisition for cash-rich Synopsys and an unexpectedly good exit strategy for Magma. Synopsys has agreed to acquire Magma for $7.35 per share in cash, a 27.8% premium over the $5.75 at which LAVA was trading on the NASDAQ the day before the acquisition was announced (it immediately jumped to $7.09 after the announcement). For Q1 of this year Magma reported a GAAP net loss of $(0.1) million, or $(0.00) per share, compared to a net loss of $(3.3) million, or $(0.06) per share for the year-ago first quarter—a slow crawl back from a bad year but hardly enough to keep up with giants Synopsys, Mentor, and Cadence, all of whom are experiencing healthy growth. Needless to say Magma’s Board of Directors unanimously approved the merger.
On the analysts call announcing the merger Synopsys CEO Aart de Geus was upbeat about the synergies between the companies, highlighting the acquisition as an opportunity to expand their R&D talent pool. John Chilton, senior vice president of marketing and strategic development at Synopsys, underscored de Geus’ point, adding, “We really are getting more requests for more technology. Deep-submicron CMOS is very complex in terms of materials, the number of transistor and the parasitics. Tools have to do more.”
The question of overlapping tools loomed large and will remain a matter of speculation until the deal closes in the middle of next year. Chilton said Synopsys would not discontinue any Magma products at the time of the deal closing, though analysis of how to integrate them into Synopsys’ product lines will clearly be front and center for the next several months.
While de Geus said on the call that Synopsys was not motivated by Magma’s strength in any one particular product area, readers are permitted to take that with a grain of salt. Magma’s FineSim Pro simulator for analog/mixed-signal SoCs has reportedly been gaining key accounts that had previously been using Synopsys HSPICE simulator for RF and analog design, which hasn’t really taken off. On the digital side Magma doesn’t offer logic simulation—much to its detriment—but in Talus and Titan they do have a very capable tool flow from RTL synthesis right through silicon implementation, with Talus’ timing analysis capability being especially attractive to Synopsys. Magma’s yield management tools will also be a plus, though Synopsys isn’t lacking there.
According to Gary Smith, chief analyst at Gary Smith EDA, “It’s a great deal for Synopsys,” not to mention Magma. Also according to Smith, FineSim and Talus fill important gaps in Synopsys’ product offerings, “making them whole.” Over the next few years the Magma acquisition should prove to be quite successful for Synopsys. Over time Smith foresees possible problems integrating both Magma’s tools and its engineers. On the tools side, Magma’s data-driven development paradigm differs considerably from Synopsys’, raising the question of whether their tools, however synergistic, can indeed be integrated; if not, which ones survive and which ones receive an End of Life notice? And will the engineers at Magma, arguably not enamored of Synopsys during their long-running legal battle, stay on after the deal closes, or will they cash out and start their own companies? Smith agrees with de Geus that the engineers are the crown jewel of the acquisition. Keeping them happy and on board will be key to the merger’s long term success.
How all this will shake out remains to be seen. Will Mentor or Cadence respond quickly by acquiring one of the dozens of small, capable EDA companies to fill gaps in their own tool flows (probably)? Will Rajeev wind up in an office next to Aart (<1% chance), or will he take the money and start a new company (>90% chance)? Only time will tell. The one certainty is that the big three EDA companies will continue their acquisition binge, becoming stronger and more capable while at the same time providing a happy landing for some intrepid entrepreneurs.