Following the $69 billion acquisition of software manufacturer VMware by chip manufacturer Broadcom in November 2023, the industrial software sector has experienced another large-scale acquisition.
On January 16th local time, chip design software manufacturer Synopsys announced its acquisition of industrial simulation software giant Ansys. According to the terms of the agreement, each Ansys share will receive $197.00 in cash 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 this acquisition is approximately $35 billion.
Both Xinsi Technology and Ansys are industry giants. Among them, Xinsi Technology ranks first among the three giants in the global Electronic Design Automation (EDA) industry, with the highest global EDA market share; Ansys, founded in 1970, holds a 42% market share in the simulation software field and firmly holds the top spot in the Computer Aided Engineering (CAE) field.
Xinsi Technology stated in a statement that its business with Ansys is highly complementary and has significant room for expansion. After the announcement, on January 16th, the US stock market closed at $509.69 per share, up 3.09%; Ansys fell 5.5% to $327.42 per share.
Large scale acquisition
As a leading enterprise in chip design tools, Xinsi Technology was founded in 1986 at the General Electric Microelectronics Center, headquartered in Sunnyville, California. It mainly produces software for engineers to design and test artificial intelligence (AI) silicon chips, and its customers include chip giants such as NVDA. US, AMD. US, and Intel (INTC. US).
As early as more than half a month ago, rumors about Xinsi Technology's acquisition of Ansys had already attracted industry attention. At that time, according to sources cited by relevant media, Xinsi Technology was one of the companies that had been negotiating potential deals with Ansys, which had also attracted other acquirers. If the negotiations between the two parties go smoothly, the transaction may be announced in the coming weeks. At that time, both Ansys and Xinsi Technology refused to comment on this news.
Now the boots are landing. According to the terms of the acquisition agreement, Ansys shareholders will exchange each Ansys stock for $197.00 in cash and 0.3450 shares of Xinsi Technology common stock. If calculated based on the closing price of $559.96 per share of Xinsi Technology common stock on December 21 last year, the transaction of Xinsi Technology acquiring Ansys is approximately $390.19 per share, a premium of about 29% compared to the closing price on December 21, and the size of the acquisition transaction is close to $35 billion. If this transaction can be successfully completed, Ansys's existing shareholders will hold approximately 16.5% of the company's shares after the acquisition is completed.
Xinsi Technology stated that its merger with Ansys is expected to strategically expand its overall potential market size. Xinsi Technology's overall potential market size (TAM) is expected to increase by 1.5 times, reaching approximately $28 billion. In addition, the merger of the two companies is expected to generate a significant amount of sustained free cash flow, which will quickly reduce the ratio of debt to adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) to less than twice within two years after the transaction is completed, and in the long run, the leverage ratio will decrease to less than twice.
According to the financial report, for the full fiscal year ended October 31, 2023, Xinsi Technology's revenue was $5.843 billion, an increase of approximately 15% from $5.082 billion in the fiscal year 2022; The net profit attributable to the parent company was 1.23 billion US dollars, an increase of 24.87% compared to 985 million US dollars in the same period last year; The operating cash flow was $1.777 billion.
This also means that Xinsi Technology needs to use external funds for acquisition. Xinsi Technology also disclosed in its statement that it plans to provide funding for a cash consideration of $19 billion through a combination of cash and debt financing, and has obtained a fully committed debt financing of $16 billion.
The giant bought out?
For this heavyweight acquisition, Xinsi Technology clearly has high hopes. Sassine Ghazi, President and CEO of Xinsi Technology, stated in a statement that in the face of increasing system complexity, the development of mainstream trends such as artificial intelligence, surge in chip demand, and software defined systems requires higher computational performance and efficiency. Xinsi Technology's globally leading EDA solution is strongly combined with Ansys' advanced simulation and analysis technology.
As the world's largest industrial simulation software company, Ansys was originally named Swanson Analysis Systems Inc. (SASI) and was acquired by venture capital firm T A. Associates acquired and later renamed Ansys, which went public in 1996. Its simulation software is widely used in industries such as aerospace, defense, automotive, and energy. According to the financial report, Ansys accumulated revenue of $1.465 billion in the first three quarters of fiscal year 2023, a year-on-year increase of 6.81%; But the net profit was 226 million US dollars, a year-on-year decrease of 15.09%.
According to official sources, the transaction is expected to be completed in the first half of 2025. If the transaction is cancelled under specific circumstances (including antitrust obstacles), Xinsi Technology will pay Ansys a termination fee of $1.5 billion; If Ansys terminates the transaction and accepts another better acquisition offer, it will need to pay a breakup fee of $950 million to Xinsi Technology. At present, there is still uncertainty in this transaction and approval from shareholders and regulatory authorities is required.
It is worth noting that just a month ago, Xinsi Technology completed another important acquisition. In December 2023, Xinsi Technology quietly acquired Imperas, a leading provider of RISC-V processor models, RISC-V validation solutions, and software simulation virtual prototypes in the UK. However, the acquisition amount was not disclosed, and the transaction was completed on December 12, 2023.
In fact, in the EDA industry, mergers and acquisitions are a common action, and many companies have become giants through continuous mergers and acquisitions. The industry giant position of Xinsi Technology is also largely attributed to frequent mergers and acquisitions.
According to a search of the official website by the International Financial News, since its establishment in 1986, Xinsi Technology has completed over a hundred mergers and acquisitions (including technology acquisitions), covering IP, software security and quality, verification and prototyping, silicon engineering, and chip design companies, thereby rapidly expanding product categories and expanding market share. In the verification and prototyping sector, more than 30 acquisitions have been made.
"In the past few years, Xinsi Technology has continuously increased investment, covering from chip design to system level and software level. Now, Xinsi Technology can provide comprehensive integrated solutions from chips to software." Previously, Sassine GhaziSassine, then President and Chief Operating Officer of Xinsi Technology, summarized the company's investment logic.