Synopsys $35 Billion Acquisition of Ansys

M&A Report: Synopsys’ $35 Billion Acquisition of Ansys

1. Overview of the Acquirer: Synopsys, Inc.

Synopsys, Inc. (NASDAQ: SNPS) is a leading provider of electronic design automation (EDA) software and services, specializing in semiconductor design technology. Synopsys plays a crucial role in advancing chip design and semiconductor innovation, supporting the creation of complex electronics used in various industries.

2. Overview of the Target: Ansys, Inc.

Ansys, Inc. (NASDAQ: ANSS) is a global leader in engineering simulation and analysis software. Ansys enables engineers to simulate various physical phenomena, including structural, thermal, fluid dynamics, and electromagnetic properties. Its software is used across industries like aerospace, automotive, and industrial equipment to enhance product performance and reliability.

3. Deal Terms

Synopsys will acquire Ansys for approximately $35 billion. Under the terms of the agreement, Ansys shareholders will receive $197.00 in cash and 0.3450 shares of Synopsys stock per Ansys share, representing a 29% premium over Ansys’ December 21, 2023, closing stock price. The transaction is expected to close in the first half of 2025, subject to regulatory approvals and other customary conditions.

4. Key Financial Impacts

• Market Expansion: The acquisition is expected to expand Synopsys’ total addressable market (TAM) by 1.5x to around $28 billion, with a projected growth rate of 11% CAGR.
• Revenue and Cost Synergies: The combined company expects to achieve $400 million in run-rate cost synergies by year three and $400 million in revenue synergies by year four, potentially growing to over $1 billion annually.
• Margin Improvement: The acquisition is anticipated to expand Synopsys’ non-GAAP operating margins by approximately 125 basis points and unlevered free cash flow margins by 75 basis points in the first full year post-closing.
• Earnings Accretion: The deal is expected to be accretive to Synopsys’ non-GAAP EPS within the second full year post-close and substantially accretive thereafter.

5. Deal Analysis

Key Impacts:

• Non-GAAP EPS Impact:
  • FY 2024: Slight dilution of $0.13 per share (-1.0%)
  • FY 2025: Minimal dilution of $0.03 per share (-0.2%)
  • FY 2026: Accretion of $0.17 per share (1.0%)
• Synergies: The model anticipates annual synergies of $200 million, contributing positively to the post-transaction financial outlook.
• Transaction Expenses:
  • Interest expenses related to new deal debt stand at $716.4 million annually.
  • Total after-tax transaction-related expenses are $463.2 million annually.

Summary:

The acquisition begins with a slight EPS dilution, turning accretive by FY 2026. The deal leverages significant synergies but is initially offset by high transaction-related expenses. The expected accretion in later years highlights the long-term financial benefits of the merger.

6. Opportunities for the Acquisition

• Strategic Fit: The acquisition strengthens Synopsys’ “Silicon to Systems” strategy by integrating semiconductor design with Ansys’ simulation and analysis capabilities. This combination addresses the increasing complexity of intelligent systems and enhances innovation in high-growth areas like automotive and aerospace.
• Complementary Capabilities: The two companies have a successful partnership history, sharing complementary technologies and cultures focused on customer empowerment and innovation.
• Market Leadership: The combined entity will become a leader in both EDA and simulation, offering a comprehensive suite of tools to meet evolving customer demands.

7. Risks of the Acquisition

• Regulatory Scrutiny: The transaction will need to pass regulatory approvals, which could delay or complicate the closing process.
• Integration Challenges: Combining two large organizations with distinct operational focuses may present integration challenges, particularly in aligning business processes and company cultures.
• Leverage and Financing: The $19 billion cash consideration will be funded through cash and $16 billion in debt financing. Managing the increased leverage and ensuring rapid deleveraging to maintain strong credit ratings is a critical focus for Synopsys.

Conclusion

The acquisition of Ansys by Synopsys is a strategic move that positions the combined company as a leader in the design and simulation industry, offering significant market expansion, innovation potential, and financial benefits. However, the success of this deal will depend on effective integration, regulatory approvals, and managing the financial implications of the acquisition.

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