Cadence Design Systems is negotiating with at least two buyout firms, the New York Times reports citing two people close to the matter. The company, which makes computer chip design software, has spoken with KKR and Blackstone, they said, but warned a deal may not be imminent due to private equity's reluctance to enter the arena of complex tech companies who require vast R&D spending, and because its relatively high $6.4 billion market cap makes it a rich risk. Cadence is regarded as one of the most innovative and aggressive companies in its field. Since 2004, it has acquired four companies, invested heavily in other Silicon Valley firms, and repurchased $1 billion of its shares. Cadence says it will introduce a new approach to chip design this year that lays wires diagonally, horizontally and vertically, making chips faster and more efficient. But Intel recently pulled support from Cadence in favor of Magma Design, which Intel says has a time-to-market advantage. Despite underwhelming revenue growth ($1.329 billion in 2005 vs. $1.484 billion in 2006), Cadence shares are up almost 100% YTD to $23, giving it a 4.1 sales multiple; competitor Synopsis trades for 3.3x, while Magma Design trades for 3.1x.
Sources: New York Times, 24/7 Wall Street
Commentary: Natural Disasters: Is Magma's Loss Cadence's Win? • Cadence Design Systems: Immune To the Semiconductor Inventory Glut • Synopsys F2Q07 (Qtr End 4/30/07) Earnings Call Transcript
Stocks/ETFs to watch: Cadence Design Systems (CDNS), Intel Corp. (INTC), Magma Design Automation Inc. (LAVA), Synopsys Inc. (SNPS)
Conference call transcript: Cadence Design Systems Q1 2007, Synopsys F2Q07
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