By Tejas Venkatesh
Cadence Design Systems (NASDAQ:CDNS) on Monday bought configurable silicon intellectual property vendor Tensilica for $380 million in cash. Not only is this Cadence's biggest acquisition, it is also paying the highest valuation in its M&A history. Tensilica generated $44 million in sales in 2012, valuing the company at 8x trailing sales. The purchase bulks up Cadence's IP business, pushing it over the $100 million mark. Previous IP acquisitions include Denali Software in May 2010 (for verification IP) and Cosmic Circuits just last month (for silicon IP).
Its exit did not come easy for Tensilica. The IP core vendor raised roughly $100 million in six funding rounds in its 16-year history. Investors include Foundation Capital, Altera, and Cisco, among others. Tensilica makes money through license fees for its IP and also via royalties on unit volumes its customers sell. The company's client list includes marquee tech names such as Intel, Broadcom, Cisco, and Samsung. Qatalyst Partners advised Tensilica on the transaction.
Tensilica's data-plane-processing units are programmable and allow customers to develop customized system on a chips (SoCs) and differentiate themselves in the mobile and wireless network infrastructure markets. These IP cores are complementary to standard processor architectures from companies like ARM Ltd., a fact highlighted by a quote in the PR from the microprocessor provider itself. Potential overlap between ARM and the EDA giants as they move further into the silicon IP and SoC business is a sensitive point.
The deal comes just four months after rival MIPS Technologies sold itself to Imagination Technologies and Allied Security Trust for a combined $450 million. CEVA, which unsuccessfully bid for that business against Imagination, is now the last remaining stand-alone company. Its revenue for 2012 dipped to $54 million, down 11% compared with $60 million in 2011. Cadence's larger competitor Synopsys has been buying into silicon IP steadily since the acquisition of Virage Logic for $315 million in June 2010. Virage had previously acquired ARC International for its configurable IP, a more direct rival to ARM. Both Cadence and Synopsys are looking to take advantage of faster growth rates beyond their mature EDA tools businesses.