Tag Archives: Synopsys

What’s the Deal with the Altium Deal?

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The masses are atwitter over the announced Renesas acquisition of Altium, and for good reason. The $5.9 billion price tag is some real coin.

What’s less clear to almost everyone outside the two companies, however, is the underlying strategy and how the merged entity will look going forward.

In announcing the acquisition, Renesas chief executive Hidetoshi Shibata called it “an important first step into our long-term future.” But what is that future?

Obviously, Renesas is not going to take Altium private, for use for its internal customers only. The two firms do have many overlapping markets: IoT, consumer, automotive, among others. Renesas also plays in higher-end areas such as high-performance computing that Altium has not to our knowledge penetrated. If OEMs want one-stop shopping for a systems program, a combined Renesas-Altium starts to make some sense. But the latter lacks the chip package tool to complete the proverbial – and literal – circuit.  

Less clear, however, is why Altium is worth so much to Renesas. Yes, it likely has as large an installed base as any major PCB CAD company. Its revenue, however, puts it behind Zuken in fourth overall, well behind Cadence and Siemens. Shibata highlighted Altium’s growth rates and profitability. But neither its revenue nor its net income ($43 million in its last fiscal year) will move the needle for Renesas.

As for the price: Renesas will pay $5.9 billion in the all-cash transaction. That’s a healthy premium relative to other significant deals in the industry over the past decade. I’m not of the mindset every deal must pay off in direct financial ways, but given the price tag, on the surface I think this one will be a tough climb.

That said, big deals are nothing new to Renesas. Including the pending Altium check, it has spent some $22 billion on various chip and software companies over the seven years.

How does this one rank with other high-profile M&As? Let’s look at some measures:

CompanyPrior 4Q Revenue at AcquisitionAcquisition PriceStock PremiumRevenue Multiple
Cadence$1.33B   
Sigrity$20M$80Mna4x
Siemens€79.6B (US$88.4B)   
Mentor Graphics$1.18B$4.5B21%3.8x
Synopsys$6B   
Ansys$2.16B$35B29%16x
Renesas$9.94B   
AltiumA$263M (US$171.6M)$5.9B34%  22x

Cadence bought Sigrity in 2012 for what now seems like couch change: $80 million.

The Ansys acquisition announced last month reportedly will increase Synopsys’ total addressable market by a 50% to $28 billion. While Synopsys is strictly EDA, Ansys plays heavily in the automation space, with focus on large end-markets like automotive, aerospace and industrial. Semi makes up less than one-third of Ansys’ revenue. (Asked on a conference call for how the Altium deal would affect Renesas’ TAM, the company demurred.)

This all can be traced back to Siemens’ 2017 acquisition of Mentor Graphics. Under duress after multiple hostile takeover attempts, including one by Cadence, Mentor was acquired by the German conglomerate as less than 4 times annual revenue. Synopsys is paying 16 times revenue for Altium, Renesas is paying more than 22 times revenue for Altium. How the CAD company’s former shareholders must be wishing they were still on the block now!

Renesas hinted that Altium shouldn’t be viewed in a vacuum but as part of a larger strategy. Will Zuken be next? At $250 million in revenues over the past four quarters, and a market cap of $630 million, it would likely be a far cheaper buy. And Zuken could add chip package and high-end PCB tools to the suite, while also bringing several major military and aerospace customers. Zuken has danced with others through the years. Might it someday find a new home with Renesas?

The New Verticals

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Chasing the vertical OEMs is not a new strategy in EDA.

But it is becoming that much more widespread as the major players extend their reach from automotive (long the domain of Mentor Graphics) to other sectors.

Semiconductor design companies — the linchpin to the product development and cash flow of Synopsys, Mentor and Cadence — are expected to consolidate over the near term, and the revenue outlook from that market is being tempered.

But the “new verticals” — military, aerospace, IoT, cloud — offer the chance for the EDA titans to extend their reach by not only selling IC design software but also an ever-growing array of emulation, analysis, and system design tools to a single customer. Doing so tightens the binds between EDA firm and customer, potentially making the deal more profitable as some list price devaluation that naturally occurs with bundling is offset by a lower cost of sales (including commissions).

As Cadence CEO Lip-Bu Tan said this week, “We had been emphasizing system design development. That basis is providing the entire vertical solution spec that is from IT tool and PCB and a host of system design and verification and we strongly believe that is the strategy going forward to meet the requirement of some vertical (markets).

“IoT, the cloud infrastructure and the massive cloud infrastructure fueling up; the automotive as kind of the connective devices; some of the medical field and DNA sequencing … and a few others: those can be clear application for some of our IT portfolio and some of our EDA flow and also some of our hardware PCB and system analysis requirements.”

We are starting to hear the major EDA companies discuss the PCB segment on their quarterly conference calls. This is an emerging trend; not long ago PCB was an after-thought to most analysts because the revenues were so puny compared to those of semiconductor. Now that PCB is part of a larger strategy, as opposed to simply a (profitable) business unit, that’s changing.

As this strategy ramps, it could very well shift the scope of acquisitions by the major EDA players. For decades, Synopsys has stayed far away from owning PCB design tools  although some of its tools have been tied into Zuken’s. Its last foray into PCB came when it acquired Viewlogic in 1997; management quickly bought out the PCB design segment the next year. Would a shrinking semi customer base lure them back in?

Most PCB design M&A related deals these days are tied to filling gaps in technology. There’s still a disconnect between ECAD and MCAD, and there will be some shakeout as new disruptive hardware startups enter the field. So while Cadence and Mentor are pursuing true top-down strategies, not everyone is following suit.

Altium corporate director, technology partnerships and business development Dan Fernsebner told me at PCB West last month, “Incubators and hardware startups have to put products out very quickly, and they have to be right the first time.” Fernsebner says the model for these companies is shifting from enterprise engineering to relying on reference designs.

Does the change to entrepreneurship pose a challenge for the developers in terms of having to reevaluate their business models, I asked Fernsebner. “I think you’ll see explosive new companies changing the business model for those who have been in it for years,” he said, citing Telsa, Nest and Skully, companies that develop products that are field-upgradeable.

It’s rare that any single model wins out completely. But if the end-customers in key industries begin to flex their muscles, it won’t be long before the M&A activity gets really interesting.

Riding High on Design

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The herd is riding on the EDA vendors, almost all of which are at or near 52-week high share prices.

In the past week, Cadence, Mentor and Synopsys hit or were trading just pennies off their yearlong highs. National Instruments and Ansys both traded much closer to their highs than their lows. Even Altium closed in on a high, but that’s a bit deceiving because it’s a penny stock and lightly traded on the Australian exchange.

So, is it the investor herd driving up an industry? Or is it a sign that the EDA market, which topped $5 billion for the first time in 2011, is geared up for a sustained run?