By Tejas Venkatesh
After sitting out of the market for the first eight months of the year, Synopsys (NASDAQ:SNPS) is suddenly on a buying spree. Having snapped up two smaller players in as many months, the largest electronic design automation (EDA) player has announced a definitive agreement to buy Magma Design Automation (NASDAQ:LAVA) for $7.35 per share in cash, representing an enterprise value of $507m.
Size matters in the mature EDA market, and Synopsys claims that the combined company will be better able to invest more in R&D and further ‘technology acceleration’ in areas such as mobile chips. However, there are concerns about whether the deal will pass regulatory muster, given substantial overlap in product offerings. That explains the asymmetry in breakup fees – Synopsys will pay $13m more if it fails to close the acquisition than what Magma would pay if it backs out ($30m vs. $17m).
The deal values Magma at a trailing sales multiple of 3.6, based on reported revenue of $142m. That’s a handsome valuation compared to the 2.2x multiple that Mentor Graphics (NASDAQ:MENT), the next-largest player after Magma, was offered by Carl Icahn in his unsolicited bid earlier this year. Synopsys will use existing cash ($230m of which is onshore) and debt to finance the deal. Qatalyst Partners banked Magma. We’ll have a full report on this deal in tonight’s Daily 451.