Last night, Synopsys announced that the two parties have reached a definitive agreement on Synopsys' acquisition of Ansys.

According to the terms of the agreement, Ansys shareholders will receive $197.00 in cash and 0.3450 shares of Synopsys common stock for each share of Ansys stock. Based on the closing price of Synopsys common stock of $559.96 on December 21, 2023, the per-share consideration is $390.19, representing a premium of approximately 29% over Ansys' closing price on December 21, 2023, and a premium of about 35% over Ansys' 60-day volume-weighted average price as of the same date.

As disclosed by the official microblog, the total value of the acquisition is about $35 billion. Synopsys plans to finance the $19 billion cash consideration through a combination of cash and debt financing, and has obtained $16 billion in fully committed debt financing. The transaction is expected to be completed in the first half of 2025, subject to approval by Ansys shareholders, necessary regulatory approvals, and other customary closing conditions.

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According to Synopsys, after the acquisition is completed, Synopsys' world-leading chip electronic design automation (EDA) will join forces with Ansys' extensive simulation and analysis product portfolio, creating a global leader in the field of chip-to-system design solutions.

Data statistics show that Synopsys accounts for 32.14% of the global EDA market, far exceeding the 23.4% of Cadence and 14% of Siemens EDA, ranking second and third respectively. With the Matthew effect, Synopsys' dominant market position is temporarily difficult to shake.

Ansys has a considerable market share of 42% in the simulation software field and also sits firmly in the top position in the CAE field. Even in the EDA field, Ansys has successfully entered the industry's fourth place.

Although mergers and acquisitions in the software industry are common, the news of the merger between the two industry giants has still attracted countless attention in the industry.

Software M&A, Industry Norm

As we all know, the development history of the electronic software industry is a history of mergers and acquisitions.Software companies are generally small when they are born, often just a technical team, and mergers and acquisitions are a common way for industrial software to expand. In the growth process of software giants, mergers and acquisitions of all sizes are countless.

Synopsys and Ansys are naturally no exception, both have expanded their business territories through this method.

Synopsys M&A History

For the EDA industry, the importance of mergers and acquisitions is self-evident.

In the development process of the EDA industry, the three giants have expanded their business, strengthened their technical strength, and expanded their market share through acquisitions. According to incomplete statistics, in the past 30 years, there have been nearly 300 mergers and acquisitions in the EDA industry. These transactions have not only changed the size and strength of the companies but have also created new competitiveness within the industry.

Among them, Synopsys, as the leader of the EDA industry, has the most mergers and acquisitions.

Looking back on its development history, the birth of Synopsys originated in the 1980s, when the increasingly complex integrated circuits and electronic systems, coupled with the scarcity of qualified integrated circuit engineers, created the demand for EDA software.

Synopsys founder Aart de Geus established an EDA team during his work at the microelectronics center of General Electric. The team invented its own logic synthesis technology to replace the manual design process. With this new tool, General Electric could complete design work that used to take weeks in just a few minutes or hours, with better results.

Aart de Geus believes that "it completely changed the concept of digital design."

Soon after, in 1986, General Electric decided to completely exit the semiconductor business and decided to close the microelectronics center. Aart de Geus and his colleagues decided to go it alone and successfully persuaded General Electric to give them the logic synthesis technology and hundreds of thousands of dollars in investment. The name of this company was Optimal Solutions, which is the predecessor of Synopsys.A year later, the company was renamed Synopsys, a name derived from the English combination of Synthesis Optimization Systems. Just as the company's name suggests, Synopsys has had almost no competitors in the logic synthesis market since its establishment.

The secret lies in the fact that Synopsys clearly recognized that the logic synthesis tool market would eventually experience slow growth, and therefore, it needed to continuously seek new business growth points during its development process.

So, where do these new business growth points come from? Mergers and acquisitions are considered a fast track for growth.

In the last decade of the last century, under the leadership of Aart de Geus, Synopsys carried out a total of 20 acquisitions.

Through a series of acquisitions, by the end of the 20th century, Synopsys had established its leading position in the three technical fields of logic synthesis, simulation, and testing.

At the same time, Synopsys's revenue was also growing rapidly. With an income of $22.1 million in 1990, the revenue had exceeded $800 million by 1999, with an astonishing growth rate.

Entering the 21st century, Synopsys, having tasted the benefits, initiated even larger-scale mergers and acquisitions.

In 2002, Synopsys acquired Avanti for $830 million, leveraging the advantages of Avanti's Astro tools, and successively integrated them with Physical Compile and Physical Compile into a powerful IC Compiler. This integration enabled parallel execution of physical synthesis, clock tree synthesis, placement, routing, yield optimization, and correction, directly connecting Synopsys's front-end and back-end tools.

Thus, Synopsys became the first leading EDA tool supplier in the history of EDA to provide top-notch complete IC design solutions for both the front-end and back-end, securing its position as the second-largest EDA industry player. In 2008, it surpassed Cadence to become the world's largest EDA tool manufacturer.

In 2008, Synopsys merged with Synplicity, a leader in FPGA implementation and debugging, entering the FPGA and rapidly growing prototyping market.Subsequently, Synopsys has successively acquired a series of related companies such as ORA, Magma, SpringSoft, and carried out technology integration, forging the current powerful Synopsys.

It is worth noting that Synopsys has also completed another important acquisition this year.

On December 12, Synopsys officially acquired Imperas Software, a British company specializing in virtual software simulation. Imperas has strong technical strength in the field of RISC-V processor technology and is known for its advanced technology and the free RISC-V instruction set simulator riscvOVPsim. This simulator allows engineers to model and simulate RISC-V processors without actual hardware devices, providing convenience for software development and testing.

This acquisition marks another important step in Synopsys' strategic layout in the RISC-V field, fully utilizing Imperas' technical advantages and expertise, and combining with its own VCS simulation and Verdi debugging tools to better meet the needs of customers in the RISC-V processor verification field, and further consolidate Synopsys' position in the RISC-V ecosystem.

Overall, Synopsys' acquisition actions show its determination to actively layout in the industry and implement expansion strategies. These acquisitions highlight Synopsys' emphasis on key technologies and fields. Through these measures, Synopsys is strengthening its position in the semiconductor and embedded fields, accelerating its influence in the emerging technology market, and thus laying a solid foundation for future development.

Ansys Growth Story

Ansys has grown from a simulation software solution provider in the field of product design and testing in Canonsburg, Pennsylvania, to the current industrial simulation software giant, and has also swallowed countless companies of various sizes along the way.

Earlier than Synopsys, Ansys was founded in 1970, initially named Swanson Analysis Systems Inc. (SASI). In 1994, Ansys was acquired by the venture capital firm T.A. Associates, then renamed Ansys, and went public in 1996.

Ansys is currently the world's largest industrial simulation software company, with its software being a large-scale general finite element analysis software that integrates structural, fluid, electric field, magnetic field, and acoustic field analysis. It has a wide range of applications in fields such as nuclear industry, railway, petrochemical, aerospace, machinery manufacturing, energy, automotive transportation, national defense, electronics, civil engineering, shipbuilding, biomedicine, light industry, geology, water conservancy, and household appliances. The company's revenue in 2022 was about 2.1 billion US dollars.

Industrial simulation software mainly refers to the use of computers to analyze the performance and safety and reliability of engineering and products, simulate their future working state and operation behavior, thereby optimizing the design, and ensuring the future engineering and product functions, performance, and reliability, helping enterprises to reduce R&D costs, optimize R&D plans, and improve R&D efficiency.Industrial simulation software is hailed as the soul of industry, the core driving force of intelligent manufacturing, and the foundation supporting the production and operation of industrial enterprises. It is widely used in various aspects of industrial production, accompanying the entire lifecycle of products from research and development, production, to sales and after-sales service. Compared to traditional physical testing to verify product performance and reliability, industrial simulation software has overwhelming advantages in terms of accuracy, timeliness, and cost, which will greatly shorten the last step from research and design to commercial mass production.

According to the data from the "White Paper on China's Industrial Software Industry," using industrial simulation software in the early stages of product development can have a leverage effect of 15-35 times on the final product's cost and quality. With the deepening of digitalization, the demand for industrial simulation software is increasingly high.

Looking back at the development history of Ansys, since 2000, Ansys has carried out a series of acquisitions, including ICEM CFD Engineering and French CADOE, which laid a solid foundation for the rapid development of simulation software. In 2006, Ansys successfully completed the acquisition of Fluent, which applies advanced CFD technology to simulate fluid, heat, and conduction, establishing Ansys's position in computational fluid dynamics. In the same year, Ansys also acquired Century Dynamics, incorporating high-speed transient dynamic analysis software into Ansys's analysis system.

In 2008, Ansys once again entered a new field - the electronic design automation (EDA) field, by acquiring Ansoft, expanding the company's applications in the fields of integrated circuits and mechatronics design. In 2011, Ansys acquired Apache Design Solutions, a provider of simulation software, filling the layout in power integrity and integrated circuit reliability simulation, enabling Ansys's simulation field to further expand into the chip field, fully entering the EDA field, and providing the industry's unique platform for collaborative design and simulation from chips to packaging and systems, covering electrical, thermal, and structural aspects.

In 2015, after completing the acquisition and subsequent development of Gear Design System, Ansys established the industry's first EDA big data intelligent computing platform, Seascape, to solve key verification issues in chip development and provide scalable elastic computing for various verification environments.

Looking at the acquisitions in the past two years, Ansys has strengthened its layout in optical simulation and aerospace, especially in the field of optics, by continuously acquiring Lumerical and Zemax, and is committed to achieving a complete end-to-end optical simulation solution.

Ansys M&A Case Statistics (Incomplete)

To date, from the perspective of corporate fundamentals, Ansys, as a leading supplier of multi-physics engineering simulation technology, has won a good reputation, and its technology enables engineers to simulate the interaction between structures, heat transfer, fluids, electronics, and optical components in a unified engineering environment.

In the EDA field, Ansys has also become the fourth largest company in the industry. Among TSMC's four golden standard software, in addition to the three giants of EDA - Synopsys, Cadence, and Mentor, Ansys is the only non-EDA software player.Like Synopsys, isn't Ansys's rise to prominence also a history of mergers and acquisitions?

But it's not just Synopsys and Ansys; almost all industrial software companies expand their territory through mergers and acquisitions. This is because the biggest barrier to industrial software is the core technical team, which has strong professional and industry attributes, making it quite difficult to "break through the circle".

In the mature industrial software market, the fate of niche players is to be acquired. Small fish do not need to grow up, leaving the big fish to have their own methods. This is the unique way of evolution in the industrial software industry, which also explains why the barriers to industrial software are profound. I have never seen a company that can grow without mergers and acquisitions. Any company that has taken root has absorbed much more wisdom than the current engineers.

The smartest brains come from the maximum integration, which is an industry rule that any subsequent challenger must face clearly.

Although mergers and acquisitions in the software industry are common, the news of Synopsys acquiring Ansys still attracted countless eyes in the industry. In this regard, Semiconductor Industry Observation interviewed several industry experts and senior insiders, and sorted out some opinions and views on the acquisition case for your reference.

Guessing the underlying reasons: Industry views

The success of this acquisition will not only create a new giant in design software but also become one of the first major merger and acquisition transactions in the semiconductor industry in 2024.

So, why did Synopsys choose to acquire Ansys? What are the motivations and reasons?

1. The demand for multi-physics field simulation

The first person we interviewed was Cang Wei, the vice president of marketing of Xinhe Semiconductor, a leading company in the domestic simulation EDA field. He said: "The driving force of this acquisition lies in the fact that Synopsys needs Ansys's multi-physics field simulation and analysis tools to meet the requirements of the EDA for the SysMoore era."Currently, with the intensification of the system-on-a-chip trend, the size of chip design is becoming increasingly smaller, coupled with the rise of 3D IC technologies such as chiplets, the simulation and calculation of multi-physics fields have become unavoidable. This necessitates a wide range of physical simulation and analysis tools to cope with the explosive complexity brought by multi-physics fields.

Compared with the expensive design and manufacturing costs, pre-simulation verification will become particularly important. This is the reason why the three major EDA companies are all moving towards mechanical heat transfer simulation.

Ansys has many years of accumulated rich experience in multi-physics field simulation, its Redhawk-SC and Totem functions, as well as new features specifically designed to address the thermal integrity and high-speed integrity challenges of 3D IC design, such as RedHawk-SC Electrothermal, can support the progress of 3D IC power integrity.

In the past few years, Ansys has been officially certified by top wafer foundries such as TSMC, Samsung, and GlobalFoundries, with its advanced semiconductor design solutions and the value of an open and extensible multi-physics field platform. Taking TSMC as an example, Ansys has successfully passed the early certification of TSMC's high-speed CoWoS and InFO 2.5D and 3D packaging technologies, and continues to cooperate with TSMC to achieve a hierarchical thermal analysis solution for 3D IC design.

In recent cooperation, Ansys Redhawk-SC and Totem have passed the sign-off certification of TSMC's latest N3E and N4P process technologies. There are also cooperations in the fields of advanced processes, multi-chip advanced packaging, and high-speed design.

In addition, to cope with technical complexity, many EDA manufacturers, including Synopsys, have also been cooperating with Ansys. From the news released by Synopsys, Ansys's industry-leading power integrity, thermal, and reliability sign-off tools have been integrated with Synopsys's Fusion Compiler platform, 3DIC Compiler platform, and PrimeTime sign-off platform, providing customers with the gold standard sign-off accuracy for chip, packaging, and system-level effects. All of this is achieved within Synopsys's design environment.

As Synopsys's biggest competitor, Cadence has also filled the gap in electromagnetic field simulation and analysis from chips to systems through acquisitions of Sigrity, AWR, and Integrand Software, established an independent multi-physics system analysis department, and acquired CFD simulation capabilities through acquisitions of NUMECA, Pointwise, and Future Facilities, preparing for system analysis in the post-Moore era.

As Lin Xueping, the general manager of Lianxun Power Consulting Company, said, many years ago, micro-scale EDA software and macro-scale CAE were once separated. Now, as Moore's Law is coming to an end, the two seem to be merging again.

It can be seen that simulation software manufacturers represented by Ansys play an important role in accelerating the design of 3D IC systems, providing necessary professional capabilities in various disciplines such as EDA, thereby achieving an efficient workflow covering many physical fields in almost all engineering fields.

Based on this, the acquisition of Ansys will further strengthen Synopsys's competitiveness in simulation tools and better meet the needs of multi-physics field simulation under the trend of system-level chips.2. The growth rate of semiconductor EDA is slowing down, expanding into more fields

Ansys is the gold standard in the traditional chip power consumption and reliability acceptance, and then after entering the 3D IC era, Ansys's HFSS and Icepak and other tools have become more critical.

EDA companies need to achieve the penetration and coverage from Design house-Fab-OSAT-System, and companies like Ansys are required.

Zhihu blogger Li Jian pointed out that Synopsys's layout is not limited to chips. After acquiring QuantumWise in 2017, Synopsys has the capability in material research and development and new material fields, not only through the DTCO design methodology, but also has the ability to migrate to many fields such as chemical engineering and energy.

In fact, Synopsys has been combining image recognition and image reconstruction technology with CAE software. In the field of batteries, using Simpleware software to identify the structure of electrode materials, generating electrode material meshes handed over to CAE software for electrochemical simulation.

Acquiring Ansys, Synopsys will be able to further achieve MSMD from the field of design simulation. After the whole process of the product, it can further integrate its Odyssey and other yield management systems to achieve paradigm migration for different industries.

On the other hand, some insiders in the EDA industry have said to the author that as Moore's Law progresses, integrated circuits have reached 2nm or even 1nm, which is almost close to the limit of current transistor manufacturing technology. Both the cost of chip manufacturing and the cost of chip design have reached an exaggerated level, and almost no big factories can enter the game.

This has also correspondingly caused the growth of EDA companies in EDA sales to slow down significantly (in the past two years, most of the growth of both Synopsys and Cadence has been in IP and hardware), and it seems to have become a consensus for the two companies to find the second growth curve of EDA companies. CAE, as the closest extension, may really be a very good choice.

Therefore, it is not difficult to judge that in this case, Synopsys's acquisition of CAE giant Ansys to expand into more fields is in line with the interests of future development.

3. Improve yieldIn recent years, when introducing its layout in the EDA field, Synopsys has repeatedly mentioned the hope to improve yield and process control through its EDA tools.

By combining EDA software with YMS (Yield Management System), achieving a closed loop of data from research and development design to manufacturing mass production, as well as improving yield, will be an inevitable path in the field of chips.

The above reasons explain the driving force behind Synopsys' acquisition of Ansys. So, what impact will Synopsys' successful acquisition of Ansys bring to the industry?

1. Synopsys will achieve a new transformation

Zhihu blogger Li Jian believes that after Synopsys acquires Ansys, it is expected to become the first company in history to truly achieve a closed-loop full product lifecycle software company from materials, devices, and processes.

At present, high-performance, high-computing power chips, 3D ICs, Chiplets, and other key global development areas have increasingly high requirements for multi-physical field simulation such as electro-thermal stress. The design of three-dimensional integrated chip SoCs is becoming more and more critical for system architecture exploration and planning, including power supply, signal quality, heat dissipation, etc., which are all major challenges. In the future, the integration of RF/silicon photonics/sensing/storage/computing/transmission also requires the support of system analysis tools.

Li Jian said, "Generally speaking, EDA software only includes chip design before packaging and testing, and it is not yet at the board-level EDA. The development of board-level EDA is relatively complex, mainly for system-level simulation, which is generally based on simulation after the chip has been designed, which is what Ansys is good at in the electronic field, mainly multi-physical field content, this is the first."

The acquisition of Ansys by Synopsys is a supplement in the technical field. Because to solve the process simulation problems of the entire semiconductor field, it is necessary to solve multi-scale and multi-domain problems (MSMD), and the simulation at the semiconductor equipment level is something that TCAD cannot solve. Therefore, a CAE giant like Ansys is needed to supplement.

2. It is expected to achieve the first industrial big model, and industrial intelligence may start from this

In fact, companies including Ansys and Siemens have already been working on solutions that combine big models with software, and Ansys is also developing solutions based on big models for customers in combination with ChatGPT-related technologies.Synopsys and Ansys share several commonalities: one is a broad product line, that is, a multitude of specialized components and engines; another is their integration with AI, making the intelligent design of chips an inevitable trend.

Synopsys has long initiated the AI transformation process of EDA software, and EDA tools have begun to utilize technologies such as machine learning and deep learning, propelling chip design into a new era of "intelligence". For instance, Synopsys launched the world's first AI autonomous chip design solution, DSO.ai, in 2020, marking the beginning of a "two-way rush" between AI and EDA, sparking a new round of revolution in the field of chip design.

Ansys has also begun to lay out in the design of AI chips. For example, under the demand for high-speed data transmission, many manufacturers have started to consider introducing optical transmission into AI computing networks. After acquiring Lumerical in 2020, Ansys provided solutions in the design of photonic integrated circuits, such as multi-physics field simulation required for co-packaged optics. Co-packaged optics, by replacing electrical connections with optical connections, brings optical I/O closer to ASICs, thereby reducing power consumption costs, and is regarded as the next major interconnection plan for data centers to replace pluggable optical modules.

There is also Ansys SimAI, a cloud-based general physical field platform that can complete performance predictions of complex simulation scenarios that used to take hours or even days within minutes, thus accelerating the design process. Ansys will also launch AnsysGPT in the future, using virtual assistants to provide technical support for simulation tools for engineers.

As the application of ML and AI becomes more widespread, CAE products will also usher in tremendous changes, so the first-mover advantage of the leading enterprises in the EDA industry is self-evident. The acquisition of Ansys by Synopsys will take over all these AI resources, further improving the efficiency and accuracy of chip design.

3. Where is the domestic EDA industry heading?

Xinhe Semiconductor points out that both Synopsys and Cadence have been actively planning multi-physics field simulation analysis capabilities outside the basic disk of traditional chip EDA in the past few years, and have made great efforts in the layout of system analysis EDA, highlighting the importance of multi-physics field simulation analysis.

The domestic semiconductor industry has seen this trend, and the construction of the 3DIC Chiplet ecosystem is in full swing, and some EDA manufacturers focusing on multi-physics field simulation analysis have also emerged.

If the acquisition is successful, the overall target market size of the EDA industry will further expand, and the three giants are expected to continue to exert efforts in this field, expanding their market share through mergers and acquisitions and self-development. At present, domestic EDA is still developing around the domestic replacement of traditional EDA tools, and the gap with the international leading level will be further widened. How to narrow this gap will become an inevitable challenge. It is very difficult for domestic EDA companies to achieve EDA+CAE through self-development, and mergers and acquisitions may be the only way.

In addition, some insiders in the EDA industry also pointed out to the author that Synopsys's current major moves are not surprising.He pointed out that Synopsys's acquisition moves, apart from the intention of a strong alliance, can also be understood to a certain extent as a defensive acquisition. Just imagine, what if Cadence and Ansys had reached some kind of acquisition or merger agreement? This would probably be a more fatal blow to Synopsys.

In fact, some industry insiders also assert that Altair, the second place in CAE, is likely to be acquired by Cadence or Siemens EDA soon. It can be anticipated that with Synopsys's move, other EDA giants will definitely follow, and there may be a series of acquisitions in the field of simulation software in the future. And as a benchmark, there may also appear similar combinations such as HuaDa JiuTian + XinHe Semiconductor in domestic EDA.

In the view of Nextplatform author Timothy Prickett Morgan, this deal came about because chip packaging outperforms EDA (original text: CHIP PACKAGING TRUMPS EDA). He said that Aart de Geus mentioned in the opening keynote speech at the 2022 IEEE International Solid-State Circuits Conference that we have entered the so-called SysMoore era—Moore's Law in the convergence of transistor design and the ambition of combining packaging and system complexity, which will jointly increase the computing power of various devices and systems by 1,000 times and bring about a "smart everything" world.

The meaning of SysMoore is the expansion of functionality, similar to what we are accustomed to obtaining from process scaling and transistor design, which comes from FORM (chiplet packaging), just as it comes from the process. Unlike the past, today's FORM no longer follows the function but achieves the continuous increase of functions at the end of the traditional Moore's Law.

"Anyway, it is clear that the ability to simulate the entire system (not just the chip) is the future trend. This is the only way to squeeze out all possible efficiency from the design. With the help of artificial intelligence in simulation, we strongly suspect that the time from the completion of the design to the start of manufacturing of all types of systems will be shortened," Timothy Prickett Morgan said in the article.

Based on these considerations, and seeing the leading product advantages of Ansys, this acquisition comes naturally.

From the Nextplatform article, we also see that Synopsys and Ansys also believe that the total potential market for simulation and analysis in 2023 is about 10 billion US dollars, and it will grow at a compound annual growth rate of about 10% from 2023 to 2028. The TAM of the chip design IP business was about 7 billion US dollars last year, with a compound annual growth rate of about 12% in the next five years; the TAM of the EDA software business is about 11 billion US dollars, with a compound annual growth rate of about 12% in the same period. All these businesses are growing faster than the global GDP, which is almost what you can expect in mature markets such as Ansys and Synopsys.Why Acquire? A Confession from Synopsys

In the view of Sassine Ghazi, President and CEO of Synopsys, the reason for driving this acquisition is mainly due to the increasing system complexity we are currently facing, as well as the development of mainstream trends such as artificial intelligence, surging chip demand, and software-defined systems, which require higher computing performance and efficiency. "The combination of Synopsys' world-leading EDA solutions and Ansys' advanced simulation and analysis technologies will enable us to provide a comprehensive, powerful, and seamlessly integrated innovation paradigm from chips to systems, helping R&D teams in various industries to maximize their development capabilities," said Sassine Ghazi.

Aart de Geus, Executive Chairman and Founder of Synopsys, also added: "Today, we are accelerating the arrival of a new era of 'Pervasive Intelligence'. We have a long-term cooperative relationship with Ansys, and the strong alliance between the two sides is another important milestone for Synopsys to continue to be a global leader. Our board of directors and management team have carefully evaluated our best strategic options to maintain a leading position and achieve success in this rapidly developing new wave of electronic and system design. The technological cooperation with Ansys can bring more value to the company, shareholders, and our innovative partners."

Ansys President and CEO Ajei Gopal pointed out: "For more than 50 years, Ansys has been committed to helping customers break through their imagination, design, develop, and deliver the most advanced products. By joining forces with Synopsys, we will redouble our efforts to promote customer innovation to a higher level. This transformative union will integrate the highly complementary capabilities of both companies to meet the constantly changing needs of current developers and provide them with unprecedented insights into product performance."

In the view of both parties, a strong merger will create the following significant value.

Leading complementary capabilities to meet customer needs: The complexity of today's intelligent systems requires the combination of semiconductor design with simulation and analysis to ensure that interconnected intelligent systems operate normally in the actual environment. Combining Synopsys' world-leading EDA technology with Ansys' mature simulation and analysis capabilities can provide our customers with a comprehensive, powerful, and system-centric innovative approach. All Ansys customers, including those outside the semiconductor industry, can benefit from our more comprehensive product and technology portfolio, thereby driving their innovation.

Accelerate strategic and growth in emerging fields: Synopsys and Ansys have highly complementary businesses with significant expansion space. This merger will further strengthen Synopsys' "from chip to system" development strategy in the core EDA field and highly potential emerging growth fields (such as automotive, aerospace, and industrial intelligent manufacturing), while Ansys has mature business layout and successful market experience in these fields.

Complementary advantages: Since 2017, Synopsys and Ansys have been continuously expanding their successful cooperative relationship, and they share the same corporate culture of integrity, pursuit of excellence, and empowering customers. Combining the highly complementary technical solutions of both parties is expected to provide customers with a broader and deeply integrated software tool combination, assisting them in solving the most challenging design challenges and gaining valuable insights through model-based analysis of complex systems.

Strategic expansion of the overall potential market size: The overall potential market size (TAM) of Synopsys is expected to grow by 1.5 times, reaching about 28 billion US dollars. Today, the demand for the integration of circuits and the physical world in various industries is accelerating, and under the drive of this major trend, it is expected that the overall potential market size of the two companies after the merger is expected to achieve a compound annual growth rate of 11%.

Strengthen Synopsys' strong financial strength and future expectations: The merger with Ansys is expected to enhance Synopsys' financial strength. The merged company is expected to continue to maintain double-digit growth, leading the industry, and this growth rate is expected to exceed the growth rate of the overall potential market size. Under the non-US GAAP, it is expected that after the merger, Synopsys' operating profit margin will increase by about 125 basis points, and the unlevered free cash flow profit margin will increase by about 75 basis points in the first year after the transaction is completed. It is expected to improve earnings per share in the second full fiscal year after the transaction is completed, and then grow significantly.A robust balance sheet supports rapid deleveraging: The merger of the two companies is expected to generate a substantial and ongoing stream of free cash flow, which will enable the debt-to-adjusted EBITDA ratio to quickly fall below 2 times within two years after the transaction is completed, with a long-term perspective of reducing leverage to below 1 times. Given its strong cash flow generation capability and commitment to rapid deleveraging, Synopsys is expected to maintain its investment-grade credit rating.

Achieving cost and revenue synergies: The merged company is expected to achieve approximately $400 million in operating cost synergies by the third year after the transaction is completed, and approximately $400 million in operating revenue synergies by the fourth year after the transaction is completed. In the long term, the annual synergies are expected to exceed $1 billion.

Conclusion

However, it is worth noting that integration between industry leaders is usually very challenging, and M&A in the EDA or software industry does not always mean "1+1>2."

According to industry insiders, although the two companies have successfully completed the merger, the subsequent integration is likely to be a lengthy process, with a relatively independent product development and sales model (status quo) expected to continue for 1-2 years. During this process, some product lines that are relatively closely connected and easy to integrate will gradually merge, and then it will take another 1-2 years to reorganize the product line BU and integrate the sales department.

A successful acquisition requires the company to have sufficient technical accumulation and adequate time support. The development of software technology and the implementation of products require time, and too rapid an acquisition may increase operational risks. Large-scale acquisitions may lead to an overly long production line for the company, which in turn may lead to further "thinning" of R&D investment, resulting in relatively insufficient R&D investment in various segments.

However, as expressed above, if we view this acquisition as a passive defensive acquisition against the industry's second place, then in the medium term, whether 1+1>2 does not seem to be so important.