Everyone expects continuing consolidation in the EDA industry, but no one expected it on the scale aspired to by Cadence Design Systems when it publicized its unsolicited attempt to acquire Mentor Graphics Corp. As has been widely reported, Mentor’s board of directors has rebuffed the $16/share offer first made in April, saying that even if it weren’t too low for their liking, it would probably run into resistance from federal anti-trust regulators.
There is, of course, the possibility that in spurning the initial offer, Mentor is simply playing hard-to-get and is holding out for a better offer from Cadence, or even from Synopsys.
Meanwhile, Mentor is on the acquisition trail in its own right as it pursues Flomerics Group PLC, a relatively small British marketer of thermal and fluid-dynamics analysis tools. Flomerics’ own board is urging shareholders to reject Mentor’s offer. Mentor already owns nearly 30% of Flomerics. Flomerics had been hoping for a white knight in the form of Autodesk, Inc., but Autodesk has decided not to make an offer for Flomerics, leaving Mentor as its sole suitor.
When asked whether the $16/share offer (which reflects an aggregate enterprise value of $1.6 billion) might prove attractive to Mentor’s shareholders despite its board of directors’ wishes, a Mentor spokesperson declared it “too early to speculate.”
It would appear that Mentor’s appeal for Cadence lies largely in its back-end/DFM portfolio, crowned by Mentor’s Calibre products, which own a huge market share in DFM. Having just reorganized around Calibre and the Sierra Design Automation portfolio acquired in 2007, Mentor looks poised to grow into a challenger in the IC implementation space. Meanwhile, Cadence has stagnated somewhat in implementation in recent years, putting much more energy and effort into its verification offerings. Cadence is also feeling pressure on its long-time lock on the analog/mixed-signal marketplace through emerging alternatives to its proprietary SKILL language and the parameterized cells, or PCells, which can be created with it.
Long-time EDA analyst Gary Smith sees a disaster in the making were Cadence to acquire Mentor. Smith has “crunched the numbers” as he sees them () and foresees a nightmarish scenario in which the newly combined Cadence and Mentor lose large numbers of R&D engineers and fail to spend adequately on tools for the 32- and 22-nm nodes. The result, Smith maintains, would be a lock on what remains of the IC-implementation market for Synopsys and Magma; that is, once the smoke clears from IDMs moving as much of their flows as possible to in-house EDA tools.