Electronic design automation company Synopsys (NASDAQ:SNPS) gained in trading after announcing the acquisition of software company Ansys (NASDAQ:ANSS) in a cash and stock deal worth $35 billion. According to the terms of the deal, Ansys shareholders will receive $197 in cash and 0.3450 shares of Synopsys common stock for each Ansys share.
The implied transaction price of $390.19 per share indicates a premium of around 29% over Ansys’ closing stock price on December 21, 2023, and a premium of around 35% to Ansys’ 60-day volume-weighted average price for the period ending on the same date. The deal is expected to close in the first half of 2025.
The acquisition will combine Synopsys’ semiconductor electronic design automation (EDA) with Ansys’ broad simulation and analysis portfolio, making Synopsys a provider of silicon-to-systems design solutions. This deal is expected to expand Synopsys’ total addressable market (TAM) by 1.5 times to approximately $28 billion, which is anticipated to grow at a compound annual growth rate (CAGR) of around 11%.
The deal is projected to boost Synopsys’ adjusted operating margin by around 125 basis points and unlevered free cash flow margins by about 75 basis points in the first year after closing. It is expected to be accretive to adjusted EPS in the second year post-closing, with significant accretion afterward. The combined entity aims to achieve about $400 million in cost synergies by the third year and $400 million in revenue synergies by the fourth year, expanding to over $1 billion annually over the longer term.
Is SNPS a Good Buy?
Turning to Wall Street, analysts have a Strong Buy consensus rating on SNPS stock based on nine Buys assigned in the past three months, as indicated by the graphic below. After a 51% rally in its share price over the past year, the average SNPS price target of $624.44 per share implies 22.44% upside potential.
