By Bruce Jenkins, Ora Research
Siemens’ just-announced agreement to acquire EDA software leader Mentor Graphics in a $4.5 billion cash transaction positions the German industrial giant to make itself the unchallenged powerhouse provider of an integrated, end-to-end digital platform for mechatronics product engineering.
Mentor Graphics, one of the pioneering Big Three developers of electronics design automation software, offers applications ranging from integrated circuit (IC) and system-on-chip (SoC) design to automotive electronics solutions. Siemens notes the acquisition will make it the “unique digital industrial player to offer mechanical, thermal, electrical, electronic and embedded software design capabilities on a single integrated platform.” Siemens explains the move furthers its “Vision 2020 to shape Digital Industrial Enterprise by expanding its unique portfolio for industrial software.”
Siemens will acquire Mentor for $37.25 per share in cash, an enterprise value of $4.5 billion. The offer price is a 21% premium to Mentor Graphics’ closing stock price on November 11, 2016, the last trading day before the announcement. Mentor Graphics’ board of directors approved and declared advisable the merger agreement, and recommended that shareholders approve and adopt the merger agreement. The acquisition also takes off the table some pressure that activist investor and minority shareholder Elliott Management had begun applying to the company of late; Siemens reports that Elliott Management has committed to support the transaction.
Extending Siemens Digital Enterprise Software portfolio with Mentor Graphics’ electronics IC and systems design, simulation and manufacturing solutions
“This acquisition decisively extends Siemens’ leading Digital Enterprise Software portfolio with Mentor’s well established electronics IC and systems design, simulation and manufacturing solutions,” Siemens commented. “These capabilities are essential for today’s smart connected products such as autonomous vehicles. The combination provides mechanical, thermal, electronic and embedded software tools which will allow Siemens’ customers to further accelerate their innovation, drive production efficiencies, and optimize the operation of their products in the field. Now, for the first time, quality, efficiency, flexibility, safety and speed can be optimized across technical domains, throughout the entire lifecycle and for the entire extended enterprise.”
Siemens AG president and CEO Joe Kaeser said, “Siemens is acquiring Mentor as part of its Vision 2020 concept to be the Benchmark for the New Industrial Age. It’s a perfect portfolio fit to further expand our digital leadership and set the pace in the industry.”
Siemens Managing Board member Klaus Helmrich added, “With Mentor, we’re acquiring an established technology leader with a talented employee base that will allow us to supplement our world-class industrial software portfolio. It will complement our strong offering in mechanics and software with design, test and simulation of electrical and electronic systems.”
Siemens says Mentor Graphics revenue, margins will contribute significantly to Siemens PLM Software business
Mentor Graphics is headquartered in Wilsonville, OR, and has employees in 32 countries worldwide. In its fiscal year ended January 31, 2016, the company had over 5,700 employees and generated revenue of approximately $1.2 billion with an adjusted operating margin of 20.2%. Siemens says it expects these attractive margins to continue in the future, and contribute significantly to the Product Lifecycle Management (PLM) software business of Siemens Digital Factory (DF) Division, which Mentor Graphics will join.
Mentor Graphics serves a large, diverse customer base of marquee systems companies and IC/semiconductors companies, and has more than 14,000 global accounts across communications, computer, consumer electronics, semiconductor, networking, aerospace, multimedia and transportation industries. The company is viewed as a global leader in strategic industry segments including IC design, test and manufacturing; electronic systems design and analysis; and emerging markets including automotive electronics.
Mentor Graphics chairman and CEO Wally Rhines commented, “Combining Mentor’s technology leadership and deep customer relationships with Siemens’ global scale and resources will better enable us to serve the growing needs of our customers, and unlock additional significant opportunities for our employees. Siemens is an ideal partner with financial depth and stability, and their resources and additional investment will allow us to innovate even faster and accelerate our vision of creating top-to-bottom automated design solutions for electronic systems. We are excited to join the Siemens family, as it is clear they share the same values and focus on customer success, and are pleased that this transaction provides immediate and certain value to our stockholders.”
Siemens reports it expects to achieve synergies through a combination of revenue growth and anticipated margin expansion, with total EBIT (earnings before interest and taxes) impact of more than €100 million within four years from closing the transaction. Also, the transaction is expected to be EPS (earnings per share) -accretive within three years from closing. Closing of the transaction is subject to customary closing conditions, and is expected in the second quarter of calendar 2017. Mentor Graphics will become part of the PLM software business of Siemens’ Digital Factory Division, an industry leader in automation technology and a leading provider of PLM software.
Siemens Managing Board member Helmrich concluded, “By adding Mentor’s electronics design automation solutions and talented experts to our team, we’re greatly enhancing our core competencies for product design that creates a very precise Digital Twin of any smart product and production line.”