Synopsys to Acquire Ansys, Creating a Leader in Silicon to Systems Design Solutions
- Combining semiconductor design technology and simulation and analysis to expand Synopsys' TAM by 1.5x to ~$28 billion.
- Enhancing non-GAAP operating margins and unlevered FCF margins.
- Being accretive to non-GAAP EPS within the second full year post-close, and substantially accretive thereafter.
- The transaction is anticipated to close in the first half of 2025, which is a relatively long time frame.
- The combination is expected to achieve approximately $400 million of run-rate cost synergies by year three post-closing and approximately $400 million of run-rate revenue synergies by year four post-closing, growing to more than approximately $1 billion annually in the longer-term, which may present challenges in integration and realization.
Insights
The acquisition of Ansys by Synopsys represents a significant consolidation in the semiconductor design and simulation industry. The deal's financial implications are profound, with an enterprise value of approximately $35 billion and an expected impact on Synopsys' non-GAAP operating margins and unlevered free cash flow margins. This transaction will likely be closely watched by investors due to its potential to create a more comprehensive suite of products, which can drive both cost and revenue synergies.
From a financial perspective, the expected accretion to non-GAAP EPS within the second full year post-closing is a critical metric for shareholders. The combination's ability to generate substantial and sustained free cash flow, enabling rapid de-leveraging, is indicative of a strong post-merger financial position. The projected growth rate of the combined company's total addressable market (TAM) surpassing the industry's compound annual growth rate (CAGR) suggests a strategic advantage in capturing market share.
However, the significant cash component of the deal, which Synopsys plans to fund through cash on hand and debt financing, will increase the company's leverage in the short term. The commitment to de-lever to less than 2x debt to Adjusted EBITDA within two years post-closing will be an important metric for assessing the company's financial health and creditworthiness post-acquisition.
The strategic rationale behind this acquisition lies in the complementary nature of Synopsys' and Ansys' product offerings. By integrating Ansys' simulation and analysis capabilities with Synopsys' EDA technology, the combined entity is poised to offer a more robust solution to customers facing increasingly complex design challenges. This is particularly relevant given the industry's megatrends such as AI, silicon proliferation and software-defined systems, which demand higher compute performance and efficiency.
The expansion of Synopsys' TAM by 1.5x to approximately $28 billion and the expected CAGR of ~11% reflect the significant market opportunity presented by the merger. The deal also strategically positions the combined company in attractive, adjacent growth areas such as automotive, aerospace and industrial sectors, where Ansys already has a foothold. This cross-pollination of technologies and market access could lead to enhanced innovation and customer value creation.
It is also noteworthy that the merger is expected to deliver cost synergies of approximately $400 million and revenue synergies of $400 million by the third and fourth years post-closing, respectively. The long-term synergy goal of over $1 billion annually underscores the potential for operational efficiencies and new revenue streams.
The acquisition's structure, with Ansys shareholders receiving both cash and stock, reflects a balanced approach to deal-making, providing immediate liquidity and continued investment upside. The premium offered over Ansys' closing stock price and the volume-weighted average price indicates a strategic valuation by Synopsys reflective of Ansys' market position and future potential within the combined company.
It is essential to consider the regulatory and shareholder approval processes as they can influence the timeline and finalization of the deal. The transaction's closing is subject to customary closing conditions, including regulatory approvals, which in such large-scale mergers can involve antitrust scrutiny. The legal advisors' role in navigating these complexities will be crucial to avoid any potential regulatory hurdles that could delay or impede the acquisition.
Synopsys' intention to maintain investment grade credit ratings post-acquisition will require careful financial and legal management, ensuring that the strategic benefits of the merger do not compromise the company's credit position.
Highlights:
- Combines Leaders in Semiconductor Design Technology and Simulation and Analysis to Address Customers' Needs for Fusion of Electronics and Physics, Augmented with AI
- Enhances and Accelerates Synopsys' Silicon to Systems Strategy in Core EDA and New Attractive, Adjacent Growth Areas
- Expands Synopsys' TAM by 1.5x to
~ , Growing at ~$28 Billion 11% CAGR1 - Delivers High-Growth, High-Margin, Recurring Revenue; Expected to Expand Non-GAAP Operating Margins by ~125 Basis Points and Unlevered FCF Margins by ~75 Basis Points in First Full Year Post Closing
- Expected to Be Accretive to Non-GAAP EPS Within Second Full Year Post-Close and Substantially Accretive Thereafter2
"The megatrends of AI, silicon proliferation and software-defined systems are requiring more compute performance and efficiency in the face of growing, systemic complexity. Bringing together Synopsys' industry-leading EDA solutions with Ansys' world-class simulation and analysis capabilities will enable us to deliver a holistic, powerful and seamlessly integrated silicon to systems approach to innovation to help maximize the capabilities of technology R&D teams across a broad range of industries," said Sassine Ghazi, President and CEO of Synopsys. "This is the logical next step for our successful, seven-year partnership with Ansys and I look forward to working closely with Ajei and the talented Ansys team to realize the benefits of this combination for our customers, shareholders and employees."
"Since inception 37 years ago, Synopsys has been an innovation pioneer, central to world-changing semiconductor advances in computation, networking, and mobility, and now enabling the new era of 'pervasive intelligence'," said Aart de Geus, Executive Chair and Founder of Synopsys. "Joining forces with Ansys, a company we know well from our long-standing partnership, is the latest example of how Synopsys remains at the forefront. Our Board and management team carefully evaluated our top strategic options to lead and win in this fast-growing new wave of electronics and system design. The technology-broadening team-up with Ansys is an ideal, value-enhancing step for our company, our shareholders, and the innovative customers we serve."
"For more than 50 years, Ansys has enabled customers to design, develop and deliver cutting-edge products that are limited only by imagination. By joining forces with Synopsys, we will amplify our joint efforts to drive new levels of customer innovation," said Ajei Gopal, President and CEO of Ansys. "This transformative combination brings together each company's highly complementary capabilities to meet the evolving needs of today's engineers and give them unprecedented insight into the performance of their products. Ansys has a strong foundation, as demonstrated by preliminary annual contract value ("ACV") results for Q4 that are expected to exceed the high end of our guidance, and I am confident that building on our partnership with Synopsys will position us well to deliver even greater value for our customers, partners and shareholders. The combined company will accelerate the development of our joint portfolio and deliver an increased level of innovation, which will benefit Ansys' traditional customers. I am proud of all that our employees do every day to make Ansys and our customers successful and look forward to the combined company achieving even greater heights in this next chapter."
Compelling Rationale and Significant Value Creation
- Combining Leading Capabilities to Meet Customer Demand: The complexity of today's intelligent systems demands the integration of semiconductor design and simulation and analysis to ensure interconnected systems function properly in real-world settings. Combining Synopsys' EDA technology with Ansys' established simulation and analysis capabilities can provide customers a comprehensive, powerful and system-focused approach to innovation. All Ansys customers, including those outside of the semiconductor industry, can benefit from access to a comprehensive portfolio of products and technologies that will drive innovation.
- Accelerates Strategy and Growth in Attractive, Adjacent Areas: Synopsys and Ansys have highly complementary businesses and significant expansion opportunities. The combination will enhance Synopsys' Silicon to Systems strategy both across the core EDA segment and in highly attractive adjacent growth areas such as Automotive, Aerospace and Industrial, among others, where Ansys has an established presence and successful go-to-market experience.
- Complementary Fit: Synopsys and Ansys have had a successful and growing partnership since 2017, and share a culture built on integrity, execution excellence and empowering customers. Combining their highly complementary solutions is expected to provide customers with a broader, deeply integrated suite of software tools to solve their most difficult design challenges while also gaining valuable insights through model-based analysis of complex systems.
- Meaningfully Expands Total Addressable Market: Synopsys' total addressable market (TAM) is expected to increase by 1.5x to approximately
$28 billion 11% CAGR4, driven by megatrends accelerating the need for the fusion of electronics and physics across industries. - Bolsters Synopsys' Strong Financial Position and Outlook: The combination is expected to strengthen Synopsys' financial profile. The combined company expects to continue its industry-leading, double-digit growth, which is expected to outpace TAM growth. The combination is expected to expand Synopsys' non-GAAP operating margin by approximately 125 basis points and unlevered free cash flow margins by approximately 75 basis points the first full year post-closing. The combination is expected to be accretive to non-GAAP EPS within the second full year post-closing and substantially accretive thereafter.
- Strong Balance Sheet Supporting Rapid Deleveraging: The combined company is expected to generate substantial and sustained free cash flow, which will enable rapid de-leveraging to less than 2x debt to Adjusted EBITDA within two years post-closing, with a long-term leverage target of less than 1x. Synopsys expects to maintain investment grade credit ratings given its strong cash flow generation and commitment to rapidly de-lever.
- Delivers Cost and Revenue Synergies: The combined company expects to achieve approximately
$400 million $400 million $1 billion
Transaction Terms
The implied per share consideration of
Synopsys intends to fund the
The transaction is anticipated to close in the first half of 2025, subject to approval by Ansys shareholders, the receipt of required regulatory approvals and other customary closing conditions.
Advisors
Evercore is serving as financial advisor to Synopsys and Cleary Gottlieb Steen & Hamilton LLP is serving as legal advisor. Qatalyst Partners LP is serving as financial advisor to Ansys and Skadden, Arps, Slate, Meagher & Flom LLP and Goodwin Procter LLP are serving as legal advisors.
Conference Call
The two companies will host a joint conference call on January 16, 2024 at 8:30 a.m. (ET) to discuss the announcement. The conference call can be accessed by dialing 800-245-3047 (domestic) or 203-518-9765 (international) and entering SYNOPSYS as the conference ID. A live webcast can also be accessed at https://join.eventcastplus.com/eventcastplus/Synopsys-Inc-Special-Event-Conference-Call. A replay of the call will be available.
About Synopsys
Synopsys, Inc. (Nasdaq: SNPS) is the Silicon to Software™ partner for innovative companies developing the electronic products and software applications we rely on every day. As an S&P 500 company, Synopsys has a long history of being a global leader in electronic design automation (EDA) and semiconductor IP and offers the industry's broadest portfolio of application security testing tools and services. Whether you're a system-on-chip (SoC) designer creating advanced semiconductors, or a software developer writing more secure, high-quality code, Synopsys has the solutions needed to deliver innovative products. Learn more at www.synopsys.com.
About Ansys
Our Mission: Powering Innovation that Drives Human Advancement™
When visionary companies need to know how their world-changing ideas will perform, they close the gap between design and reality with Ansys simulation. For more than 50 years, Ansys software has enabled innovators across industries to push boundaries by using the predictive power of simulation. From sustainable transportation to advanced semiconductors, from satellite systems to life-saving medical devices, the next great leaps in human advancement will be powered by Ansys.
Ansys and any and all ANSYS, Inc. brand, product, service and feature names, logos and slogans are registered trademarks or trademarks of ANSYS, Inc. or its subsidiaries in
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Contacts
Synopsys Media Relations:
Email: Corp-pr@synopsys.com
FGS Global (for Synopsys): synopsys@fgsglobal.com
Ansys Media Relations:
Email: MaryKate.Joyce@ansys.com
Joele Frank, Wilkinson Brimmer Katcher (for Ansys): media-ansys@joelefrank.com
Synopsys Investor Relations:
Trey
Synopsys-ir@synopsys.com
Ansys Investor Relations:
Kelsey DeBriyn
kelsey.debriyn@ansys.com
Ansys Fiscal Year 2023 Preliminary Results
Ansys has not completed preparation of its financial statements for the fourth quarter or the fiscal year ended December 31, 2023. The annual contract value ("ACV"), recurring ACV and ACV growth figures provided here as of and for the fiscal year ended December 31, 2023, are preliminary and unaudited and are thus subject to change as Ansys completes its financial results.
Synopsys Cautionary Statement Regarding Forward Looking Statements
This document contains certain forward-looking statements within the meaning of the federal securities laws with respect to the proposed transaction between Synopsys and Ansys, including, but not limited to, statements regarding the proposed transaction and the anticipated timing of the closing thereof; Ansys' anticipated results of operations for fiscal year 2023; the market outlook, products and business of Synopsys, Ansys and the combined company, and the benefits of and cost and revenue synergies from the transaction to Synopsys; pro forma financial information; the expected structure and the proposed financing for the transaction and long-term leverage and debt paydown targets; short-term and long-term financial targets of the companies; Synopsys' expectations and objectives; strategies related to Synopsys' and Ansys' products, technology and services; trends, opportunities, strategies and technological trends, such as artificial intelligence; customer demand and market expansion of each of Synopsys and Ansys and the combined company; Synopsys' planned product releases and capabilities; industry growth rates; the total addressable markets of Synopsys, Ansys and the combined company; software trends; planned acquisitions and stock repurchases; the exploration of strategic alternatives; Synopsys' expected tax rate; and the impact and result of pending legal, administrative and tax proceedings. These forward-looking statements generally are identified by the words "believe," "project," "expect," "anticipate," "estimate," "intend," "strategy," "future," "opportunity," "plan," "may," "should," "will," "would," "will be," "will continue," "will likely result," and similar expressions or the negatives of these words or other comparable terminology to convey uncertainty of future events or outcomes. Forward-looking statements are predictions, projections and other statements about future events that are based on current expectations and assumptions and, as a result, are subject to risks and uncertainties.
Many risks, uncertainties and other factors could cause actual future events to differ materially from the forward-looking statements in this press release, including, but not limited to: (i) the completion of the proposed transaction on anticipated terms and timing, anticipated tax treatment and unforeseen liabilities, future capital expenditures, revenues, expenses, earnings, synergies, economic performance, indebtedness, financial condition, losses, pricing trends, future prospects, credit ratings, business and management strategies which may adversely affect each of Synopsys' and Ansys' business, financial condition, operating results and the price of their common stock, (ii) the failure to satisfy the conditions to the consummation of the transaction, including the adoption of the merger agreement by the stockholders of Ansys and the receipt of certain governmental and regulatory approvals on the terms expected, in a timely manner, or at all, (iii) the risk that such regulatory approvals may result in the imposition of conditions that could adversely affect, following completion of the proposed transaction (if completed), the combined company or the expected benefits of the proposed transaction (including as noted in any forward-looking financial information), (iv) uncertainties as to access to available financing (including any future refinancing of Ansys' or the combined company's debt) to consummate the proposed transaction upon acceptable terms and on a timely basis or at all, (v) the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement, (vi) the effect of the announcement or pendency of the transaction on Ansys' or Synopsys' business relationships, competition, business, financial condition, and operating results, (vii) risks that the proposed transaction disrupts current plans and operations of Ansys or Synopsys and the ability of Ansys or Synopsys to retain and hire key personnel, (viii) risks related to diverting either management team's attention from ongoing business operations of Ansys or Synopsys, (ix) the outcome of any legal proceedings that may be instituted against Ansys or Synopsys related to the merger agreement or the transaction, (x) the ability of Synopsys to successfully integrate Ansys' operations and product lines, (xi) the ability of Synopsys to implement its plans, forecasts, expected financial performance and other expectations with respect to Ansys' business or the combined business after the completion of the proposed mergers and realize additional opportunities, develop customer relationships, additional products and Ansys' existing operations and product lines, (xii) the ability of Synopsys to manage additional debt and successfully de-lever following the transaction and the outcome of any strategic review and any resulting transactions, (xiii) risks associated with third party contracts containing consent and/or other provisions that may be triggered by the proposed transaction, (xiv) macroeconomic conditions and geopolitical uncertainty in the global economy, (xv) uncertainty in the growth of the semiconductor, electronics and artificial intelligence industries, (xvi) the highly competitive industries Synopsys and Ansys operate in, (xvii) actions by the
You should carefully consider the foregoing factors and the other risks and uncertainties that affect the businesses of Synopsys and Ansys described in the "Risk Factors" section of their respective Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and other documents filed by either of them from time to time with the SEC. These filings identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those contained in the forward-looking statements. Forward-looking statements speak only as of the date they are made. All forward-looking statements by their nature address matters that involve risks and uncertainties, many of which are beyond Synopsys' and Ansys' control, and are not guarantees of future results. Readers are cautioned not to put undue reliance on forward-looking statements, and Synopsys and Ansys assume no obligation and do not intend to update or revise these forward-looking statements, whether as a result of new information, future events, or otherwise, unless required by law. Neither Synopsys nor Ansys gives any assurance that either Synopsys or Ansys will achieve its expectations.
Ansys Cautionary Statement Regarding Forward-Looking Statements
This document contains "forward-looking statements" within the meaning of the federal securities laws, including Section 27A of the
Important Information and Where to Find It
This document relates to a proposed transaction between Synopsys and Ansys. Synopsys will file a registration statement on Form S-4 with the SEC, which will include a document that serves as a prospectus of Synopsys and a proxy statement of Ansys referred to as a proxy statement/prospectus. A proxy statement/prospectus will be sent to all Ansys shareholders. Each party also will file other documents regarding the proposed transaction with the SEC. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE REGISTRATION STATEMENT, PROXY STATEMENT/PROSPECTUS AND ALL OTHER RELEVANT DOCUMENTS FILED OR THAT WILL BE FILED WITH THE SEC IN CONNECTION WITH THE PROPOSED TRANSACTION, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THESE DOCUMENTS, CAREFULLY AND IN THEIR ENTIRETY IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION.
Investors and security holders will be able to obtain free copies of the registration statement, proxy statement/prospectus and all other relevant documents filed or that will be filed with the SEC by Synopsys or Ansys through the website maintained by the SEC at www.sec.gov.
The documents filed by Synopsys with the SEC also may be obtained free of charge at Synopsys' website at https://investor.synopsys.com/overview/default.aspx or upon written request to Synopsys at Synopsys, Inc., 675 Almanor Avenue,
Participants in Solicitation
Synopsys, Ansys and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from Ansys' shareholders in connection with the proposed transaction. Information about Ansys' directors and executive officers and their ownership of Ansys' common stock is set forth in Ansys' proxy statement for its 2023 Annual Meeting of Shareholders on Schedule 14A filed with the SEC on March 28, 2023. To the extent that holdings of Ansys' securities have changed since the amounts printed in Ansys' proxy statement, such changes have been or will be reflected on Statements of Change in Ownership on Form 4 filed with the SEC. Information about Synopsys' directors and executive officers is set forth in Synopsys' proxy statement for its 2023 Annual Meeting of Shareholders on Schedule 14A filed with the SEC on February 17, 2023 and Synopsys' subsequent filings with the SEC. Additional information regarding the direct and indirect interests of those persons and other persons who may be deemed participants in the proposed transaction may be obtained by reading the proxy statement/prospectus regarding the proposed transaction when it becomes available. You may obtain free copies of these documents as described in the preceding paragraph.
No Offer or Solicitation
This document is for informational purposes only and is not intended to and shall not constitute an offer to buy or sell or the solicitation of an offer to buy or sell any securities, or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made, except by means of a prospectus meeting the requirements of Section 10 of the
Non-GAAP Financial Information
This document includes certain forward looking financial measures that are not in accordance with the
- Adjusted EBITDA ("Adj. EBITDA") is calculated as GAAP Operating Income excluding depreciation and amortization, stock compensation, non-qualified deferred compensation plan, acquisition-related costs and restructuring charges
- Free Cash Flow ("FCF") is calculated as cash provided from operating activities less capital expenditures and capitalization of software development costs
- Unlevered Free Cash Flow ("uFCF") is calculated as Free Cash Flow excluding tax-effected cash net interest
- Unlevered Free Cash Flow Margin is calculated as Unlevered Free Cash Flow for a period divided by revenue for the same period
- Non-GAAP Earnings Per Share ("EPS") is calculated as GAAP net income excluding amortization of intangible assets, stock compensation, acquisition-related costs, restructuring charges, and legal matters, adjusted for the difference between GAAP and non-GAAP tax rates, divided by fully diluted outstanding shares
- Non-GAAP Operating Income is calculated as GAAP Operating Income, excluding amortization of intangible assets, stock compensation, non-qualified deferred compensation plan, acquisition-related costs and restructuring charges
- Non-GAAP Operating Margin is Non-GAAP Operating income for a period divided by revenue for the same period
Synopsys and Ansys present non-GAAP financial measures to provide their investors with an additional tool to evaluate Synopsys' and Ansys' respective operating results in a manner that focuses on what Synopsys and Ansys each believe to be their respective core business operations and what Synopsys and Ansys each use to evaluate their respective business operations and for internal budgeting and resource allocation purposes. These non-GAAP measures may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles, and management exercises judgment in determining which items should be excluded in the calculation of non-GAAP measures. The presentation of non-GAAP financial information is not meant to be considered in isolation from, as superior to or as a substitute for the directly comparable financial measures prepared in accordance with GAAP. These non-GAAP financial measures are meant to supplement, and be viewed in conjunction with, the corresponding GAAP financial measures.
When possible with respect to non-GAAP financial measures presented with respect to historical periods, Synopsys and Ansys, respectively, provide a reconciliation of their historic non-GAAP financial measures to their most closely applicable GAAP financial measures in the documents filed by Synopsys and Ansys with the SEC. Synopsys and Ansys, respectively, are unable to provide a reconciliation of certain non-GAAP guidance measures to the corresponding GAAP measures on a forward-looking basis because doing so would not be possible without unreasonable effort due to, among other things, the potential variability and limited visibility of the excluded items and expectations as to the financial of performance of each of Synopsys and Ansys upon the completion of the mergers. For the same reasons, Synopsys and Ansys are each unable to address the probable significance of the unavailable information. Synopsys and Ansys are presenting forward looking non-GAAP financial measures for illustrative purposes and may not report on this basis going forward.
Combined company measures for historical periods are based on combining Synopsys' historical financial results and Ansys' historical or preliminary financial results, as applicable, without pro forma adjustments and are included for illustrative purposes in order to provide investors with estimates of what the combined company results could have been. Combined company estimates are not pro forma financial measures, are not prepared in accordance with Regulation S-X under the
Other Key Business Metrics
Annual Contract Value ("ACV") is a key performance metric for Ansys and is useful to investors in assessing the strength and trajectory of the business. ACV is a supplemental metric to help evaluate the annual performance of the business. Over the life of the contract, ACV equals the total value realized from a customer. ACV is not impacted by the timing of license revenue recognition. ACV is used by Ansys' management in financial and operational decision-making and in setting sales targets used for compensation. ACV is not a replacement for, and should be viewed independently of, GAAP revenue and deferred revenue as ACV is a performance metric and is not intended to be combined with any of these items. There is no GAAP measure comparable to ACV.
ACV is composed of the following: 1) the annualized value of maintenance and subscription lease contracts with start dates or anniversary dates during the period, plus; 2) the value of perpetual license contracts with start dates during the period, plus; 3) the annualized value of fixed-term services contracts with start dates or anniversary dates during the period, plus; 4) the value of work performed during the period on fixed-deliverable services contracts.
1 Compound annual growth rate from FY 2023 to 2028.
2 Expected to be accretive in second full year post-close including cost synergies only, substantially accretive thereafter including cost and revenue synergies.
3 The last trading day prior to media speculation regarding a potential transaction.
4 Compound annual growth rate from FY 2023 to 2028.
5 The last trading day prior to media speculation regarding a potential transaction.
6 Includes the refinancing of Ansys' existing debt and transaction expenses.
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SOURCE Synopsys, Inc.
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