Ansys Investors Don’t Like Ansoft Acquisition

Includes: ANSS, ANST
by: William Trent, CFA

This morning Ansys (NASDAQ:ANSS) announced it would buy Ansoft (ANST) for $16.25 per share in cash and 0.431882 shares of Ansys. A conference call discussing the deal was webcast at 11:30 EST.

Ansoft is a leading developer of high-performance EDA software. The software is based on more than 25 years of research and development by world-renowned experts in electromagnetics, circuit and system simulation. Engineers use Ansoft products to simulate high-performance electronics designs found in mobile communication and Internet devices, broadband networking components and systems, integrated circuits, printed circuit boards and electromechanical systems. The company’s products are used by blue chip companies as well as small- and medium-sized enterprises around the world.

The acquisition of Ansoft is ANSYS’ first foray into the broader EDA software industry and will enhance the breadth, functionality, usability and interoperability of the combined ANSYS portfolio of engineering simulation solutions.

The “first foray” signals that Ansys won’t be getting much, if any, synergies from the deal. Nor did the press release predict any. The fact that both companies are headquartered in Pittsburgh will minimize costs related to the combination, but that is about it.

Investors signaled their distaste for the deal by sending Ansys shares down more than 9% in late day trading Monday. In fact, the two companies now have a combined market cap that is $100 million lower than it was before the deal was announced. This could represent investor’s view of the value being destroyed by the deal, or the costs associated with combining the two companies. This is a big contrast to the positive reaction given to the acquisition of Fluent in 2006.

As an Ansys shareholder, I am disappointed that the shares are lower. However, I still think Ansys works in an attractive market segment and am willing to give some benefit of doubt to a management team that has quadrupled shareholder wealth over the last four years.

Disclosure: William Trent owns shares of Ansys (ANSS).