The global semiconductor industry is experiencing major mergers and acquisitions.
On January 16th, New Silicon Technology (NASDAQ code: SNPS) and Ansys (NASDAQ code: ANSS) announced that they had reached a final agreement on the acquisition of Ansys by New Silicon Technology. According to the terms of the agreement, Ansys shareholders will receive $197.00 in cash per share of Ansys stock and 0.3450 shares of Xinsi Technology common stock. Based on the closing price of Xinsi Technology common stock on December 21, 2023, the total value of the acquisition is approximately $35 billion.
According to observations by Securities Times reporters, there will be at least 20 international mergers and acquisitions in the semiconductor industry in 2023, with related fields mainly concentrated in EDA, AI, third-generation semiconductor materials, and other fields. This transaction is another acquisition plan of Xinsi Technology in the past six months. In August last year, the company announced that it had completed the acquisition of PikeTec GmbH, one of the leaders in automotive control unit system software testing and validation solutions.
Semiconductor industry insiders believe that Xinsi Technology has the world's leading chip electronic design automation (EDA) technology, while Ansys is a leader in simulation analysis technology. The combination of the two is expected to create a global leader in the field of chip to system design solutions.
Strengthen the development strategy of "from chip to system"
What is the background of this acquisition and how will it affect both parties? Sassine Ghazi, Global President and CEO of Xinsi Technology, stated: Faced with the increasing complexity of systems, the development of mainstream trends such as artificial intelligence, the surge in chip demand, and software defined systems requires higher computational performance and efficiency. The strong combination of Xinsi Technology's globally leading EDA solution and Ansys advanced simulation analysis technology will enable us to provide a comprehensive, powerful, and seamless integration of innovative paradigms from chips to systems, helping technology research and development teams in various industries achieve development capabilities Maximizing force. This is also the logical next step after seven years of successful cooperation with Ansys
Ajei Gopal, President and CEO of Ansys, stated that for over 50 years, Ansys has been committed to assisting customers in breaking their imagination, designing, developing, and delivering the most advanced products. By partnering with Xinsi Technology, the company will double its efforts to drive customer innovation to a higher level.
This transformative alliance will integrate the highly complementary capabilities of the two companies to meet the constantly changing needs of current developers and provide them with unprecedented insights into product performance. Ansys has a solid foundation and preliminary annual contract value (ACV) for the fourth quarter It is expected to exceed the upper limit of our guidance range. The merger with Xinsi Technology will accelerate the development of our joint product portfolio and provide higher levels of technological innovation, which will greatly benefit Ansys' customers Ajei Gopal said.
According to the official website of Xinsi Technology, this merger will further strengthen Xinsi Technology's "chip to system" development strategy in core EDA fields and highly promising emerging growth areas such as automotive, aerospace, and industrial intelligent manufacturing. Ansys has a mature business layout and successful market experience in these areas.
It is reported that since 2017, Xinsi Technology and Ansys have been continuously expanding their cooperative relationship. By combining highly complementary technological solutions from both parties, it is expected to provide customers with a broader and deeply integrated software tool portfolio to assist them in solving the most challenging design challenges and gain valuable insights through model-based analysis of complex systems.
TAM is expected to grow by 1.5 times
As the world's largest EDA software supplier, Xinsi Technology released its fourth quarter financial report for the 2023 fiscal year at the end of last year. In the fourth quarter of fiscal year 2023 (as of October 31, 2023), the company's annual revenue increased by 25% to $1.599 billion, better than the financial forecast range of $1.567 billion to $1.597 billion and Wall Street's previous expectation of $1.585 billion. The revenue for fiscal year 2023 was $5.843 billion, an increase of approximately 15% from $5.082 billion in fiscal year 2022.
Xinsi Technology believes that this acquisition will also strategically expand the overall potential market size: Xinsi Technology's overall potential market size (TAM) is expected to increase by 1.5 times, reaching approximately $28 billion. Nowadays, the demand for the integration of circuits and the physical world in various industries is accelerating. Driven by this trend, it is expected that the overall potential market size of the two companies after the merger is expected to reach a compound annual growth rate of 11%.
In terms of finance, under non GAAP accounting standards, it is expected that after the merger, the operating profit margin of Xinsi Technology will increase by about 125 basis points, and the leveraged free cash flow profit margin will increase by about 75 basis points in the first year after the transaction is completed. It is expected to increase earnings per share in the second full year after the transaction is completed and significantly increase thereafter.
The merged company is expected to achieve approximately $400 million in operating cost synergies in the third year after the transaction is completed, and approximately $400 million in operating revenue synergies in the fourth year after the transaction is completed. In the long run, the annual synergies will exceed $1 billion.
According to disclosure, Xinsi Technology plans to provide funding for a cash consideration of $19 billion through a combination of cash and debt financing. Xinsi Technology has obtained a fully committed debt financing of $16 billion. According to the terms of the agreement, it is expected that Ansys shareholders will own approximately 16.5% of the estimated equity in the merged company. The transaction is expected to be completed in the first half of 2025, but requires approval from Ansys shareholders, necessary regulatory approvals, and other customary transaction conditions.