Synopsys is to buy Ansys in a deal with an enterprise value of approximately $35 billion.

“The megatrends of AI, silicon proliferation and software-defined systems are requiring more compute performance and efficiency in the face of growing, systemic complexity,” says Synopsys CEO Sassine IMG_2733-150x150.jpegGhazi (pictured)  “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.”

The rationale for the deal includes:

 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.
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.
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.
 Synopsys’ total addressable market (TAM) is expected to increase by 1.5x to approximately $28 billion. This combined TAM is expected to grow at roughly an 11% CAGR4, driven by megatrends accelerating the need for the fusion of electronics and physics across industries.
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.
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.
The combined company expects 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.
Synopsys intends to fund the $19 billion of cash consideration through a combination of its cash on hand and debt financing. Synopsys has obtained $16 billion of fully committed debt financing.