The Strategist

Siemens to spend $ 4.5 billion on the largest in two years acquisition

11/14/2016 - 13:46

Siemens announced a deal to acquire American company Mentor Graphics, specializes in development of software and electronics for electronic design automation.

According to a proposal already approved by Mentor Graphics’ Board of Directors, Siemens is willing to pay $ 37.25 for each share of the US company, which is 21% higher than value of its securities at November 11, 2016. Thus, total value of the deal could reach $ 4 5 billion. According to Bloomberg, the transaction will be the largest absorption conducted by Siemens since 2014.

Completion of the deal is planned in the second quarter of 2017 after receiving necessary approvals from the regulatory authorities.

A press release from Siemens noted that purchase of Mentor will become yet another step within "Vision 2020", the group’s strategy for the period up to 2020. Among other things, the strategy includes expansion of opportunities in the industrial software sector. According to President and CEO of Siemens Joe Kaeser, "Mentor is the perfect complement to portfolio of assets that will strengthen our leadership and set the tone for the entire industry."

Mentor Graphics, headquartered in the US, has employees in 32 countries. At the end of the fiscal year, ended in January 31, the company's staff exceeded 5,700 people and annual revenues were approximately 1.2 billion dollars in operating margin over 20%. Such a purchase usually requires regulatory approvals. If the deal’s participants obtain permission, the transaction can be completed in the second quarter of 2017. As a result, Mentor Graphics will become part of Siemens’ unit called DF Division. The purchase would be a great addition to the company’s existing products in the area of Product Lifecycle Management solutions.

Previously, Siemens has already made several major acquisitions in the software industry. Thus, in early 2016 the company spent 970 million dollars to acquire CD-adapco, an American developer of engineering software. In 2007, Siemens acquired UGS company, a manufacturer of Product Lifecycle Management (PLM) software, for $ 3.5 billion.

Siemens expects that purchase of Mentor Graphics Corporation will increase earnings before interest and taxes (EBIT) by more than 100 million euros over four years after the transaction is closed. Net loss of Mentor Graphics for the 6-month period ended July 31, 2016, amounted to US $ 10 million against a profit of $ 21 million a year earlier.

In 2015, total amount of the PLM market reached 38.7 billion dollars, up by 2.8% compared to 2014. 

Most of the market leaders showed significant growth as they continued process of strategic acquisitions, and - in some cases – proceeded to penetrate new markets.

CIMdata believes that by 2020 the PLM market will reach 52.3 billion US dollars with an average annual growth of 6.3%.

Companies made PLM-investment in many areas using various types of solutions, including MCAD, CAE, visualization, collaboration, the AEC and others. This diversity gave rise to many PLM-solutions vendors. Now, there is no single type of provider dominant in the market. In 2015, the market had sixteen providers with revenues exceeding $ 500 million. Of these, three solutions providers (Dassault Systèmes, PTC and Siemens PLM Software) have strong positions in tools and cPDm technology sectors, while others (eg, the Autodesk and Mentor Graphics) are mainly focused on delivering tools and individual segments.