Recently, global EDA (Electronic Design Automation) giant Synopsys announced plans to acquire industrial simulation software company Ansys for $35 billion, a deal that has garnered widespread attention. The UK's Competition and Markets Authority (CMA) has initiated a formal Phase 1 investigation into the merger under the relevant provisions of the UK's Enterprise Act 2002. The CMA must announce whether to proceed to a more in-depth Phase 2 investigation by December 20, 2024.
Synopsys, headquartered in Sunnyvale, California, USA, is a major provider of EDA software. Its tools are widely used in chip manufacturers' design processes, including creating chip blueprints, testing blueprint errors, and automating repetitive parts of the development workflow. Additionally, Synopsys offers chip design licensing services, providing ready-made blueprints for semiconductor products such as AI processors, memory circuits, and network modules, significantly accelerating chip development.
On the other hand, Ansys, the acquiree, specializes in simulation software with products and services widely applied across multiple industries, including automotive, industrial equipment, and high-tech sectors. Ansys' software helps engineers predict product performance in real-world conditions, particularly in automotive manufacturing where it is used to develop engines, batteries, and other core vehicle subsystems. Furthermore, Ansys provides various engineering applications for sensor design and quantum computing.
It is estimated that this merger will increase Synopsys' Total Addressable Market (TAM) by 1.5 times, reaching approximately $28 billion. The combined company is expected to maintain double-digit growth, outpacing the overall TAM growth rate and further consolidating Synopsys' leadership position in the global EDA market. Besides expanding its market size, the merger will also bring significant financial benefits to Synopsys. Under Non-GAAP (Non-Generally Accepted Accounting Principles), Synopsys' operating profit margin is expected to increase by about 125 basis points, and its unlevered free cash flow margin is projected to improve by approximately 75 basis points in the first year after the transaction closes. This will provide Synopsys with additional financial support to address potential future market challenges.
However, this deal has raised concerns at the UK's CMA. The CMA stated that it decided to launch a formal Phase 1 merger investigation due to potential competition issues arising from the transaction. The main purpose of the investigation is to determine whether the sale of Ansys will harm competition in the UK market and may decide in the future whether to proceed to a more in-depth Phase 2 investigation. If the CMA deems it necessary, it may block the deal or order changes to its terms.
Meanwhile, Synopsys is also facing an investigation by the US Department of Commerce. The Commerce Department is probing whether Chinese companies are circumventing sanctions by setting up new companies, and Synopsys has been included in the investigation scope to confirm whether it provided critical technology to Chinese companies and violated US export control regulations. Sassine Ghazi, President and Chief Operating Officer of Synopsys, stated that the company has robust export control and balance mechanisms and is actively cooperating with the US government's investigation.
Despite facing numerous challenges, Synopsys remains confident in the outlook for this acquisition. The company believes that by acquiring Ansys, Synopsys will gain a foothold in many areas where it currently does not have a significant presence and strengthen its flagship chip design software business. Ansys' product portfolio includes multiple applications aimed at simplifying processor development workflows, which are already integrated with Synopsys' software and may be more easily integrated into Synopsys' product portfolio in the future.
The completion of this merger will have a profound impact on the global semiconductor industry. As chip sizes continue to shrink, 3DIC technology rapidly advances, and design challenges arise, accurate analysis results are crucial for various heterogeneous designs. Synopsys needs Ansys' multi-physics simulation and analysis tools to meet the requirements of its advocated "SysMoore" concept for EDA. By acquiring Ansys, Synopsys will further strengthen its leadership position in chip design and simulation software, injecting new vitality into the development of the global semiconductor industry.
In summary, Synopsys' $35 billion acquisition of Ansys has not only garnered widespread attention in the global market but has also triggered in-depth investigations by antitrust authorities. Whether this deal can be successfully completed and whether Synopsys can maintain its market leadership in the future will continue to be issues worth monitoring.
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