Merry Mergers

posted in: Chip Design Mag | 9

In 2009 I expect that EDA companies will continue to merge in order to stay financially viable. Here are a few rules and questions that companies should consider following for a successful merger:

  1. Friendliness – This means non-hostile. If you cannot agree to a merger then just move on to the next company or invest and develop the products yourself. I have yet to see a hostile EDA merger succeed and then payback the acquisition costs. Don’t use the press to shame the unwilling company into a merger.
  2. No product overlap – Zero overlap is the best because it truly allows your sales teams to bring new products to the installed base. The only reason that I would break this rule is if your only intention is to buy market share in a narrow market segment and then discontinue the weaker products.
  3. Cultural match – Does each company have the same work ethic? Do you reward employees the same way? Do you both promote from within? Are you both located near the most important customers? Do you speak the same language? Do you have the same ethical standards?
  4. Synergy – Do your products connect together in a flow that makes sense? Can each sales team quickly learn how to sell both products? Are you already selling to the same top 10 accounts?
  5. Organization plan – In the first 30 days you need to announce the new organizational structure, changes to the compensation plan, and any benefit changes. Don’t let your employees second-guess who is going to be running each division, group and product line.

9 Responses

  1. Ray Salemi

    What do you mean “continue to merge”? I haven’t seen any mergers, at least among the big three.

    On the other hand, large EDA companies, with their established channels constantly buy startups to refresh the technology.

    This is, in fact, a much wiser policy than investing in risky new EDA technology in house. Venture capitalists are structured to manage high risk portfolios, pubic companies are not, so buying the winning horse is a safer bet than trying to win the race.

    Did you means small companies merging?

  2. Daniel

    Ray,

    EDA mergers in 2008:
    1) Cadence hostile bid for Mentor, failed.
    2) Virage hotsile bid for LogicVision, failed.
    3) Mentor hostile bid for Flomerics, passed.
    4) SpringSoft and Novas merge.
    5) Synopsys acquires Synplicity.
    6) Ansys and Ansoft merge.
    7) Catalytic acquires part of Celoxica.

    Daniel

  3. Sean Murphy

    It’s a good checklist and one that you would think would have been followed more often this year. Equally interesting as a development, to me at least, have been VC backed EDA startups that evaporate without another EDA firm at least buying the assets.

    Athena Design is a recent example (they were at http://www.athenda-ad.com and archive.org still has some versions of their site available).

    They were last covered in EET on July 30, 2008 by Peter Clarke in “Athena Design Systems: websites down, numbers disconnected”

    http://www.eetimes.com/news/latest/showArticle.jhtml?articleID=209900305

    LONDON ­ EDA company Athena Design Systems Inc. (Santa Clara, Calif.), appears to have shut up shop.

    Two websites used by the company, http://www.athenadesign.com and http://www.athenads.com , are now “under construction.” Telephone numbers are “disconnected or no longer in service.”

    Athena was founded in 2003 by IC extraction expert Dimitris Fotakis. The company announced it had raised $4 million in venture capital funding in January 2007, bringing the total to $8.2 million. That round added PhillipCapital and NTT Finance Corporation, to the company’s initial investors, who included Woodside Fund, Asset Management Company, and Draper Richards. The money was earmarked for the worldwide rollout of Athena’s first products.

    Athena was included in the EE Times Silicon 60 version 6.1 list of companies to watch but dropped off version 7.0 of the list, published in February 2008.

    An earlier example would be Tera Systems (www.terasystems.com).

    Reshape’s assets were acquired by Magma after raising a total of $31M, no employees were hired by Magma.

  4. Daniel

    Sean,

    When EDA assets are for sale then somebody in the acquiring engineering team has to say, “Yes, I’ll re-use that code.”

    Most developers prefer to write code from scratch instead of re-use anything because it offers more job security. So they simply pass on acquiring the assets and opt to re-create something similiar in a year or two.

  5. Sean Murphy

    some additions.

    Magwell ( http://www.magwell.com ) acquired Kimotion ( http://www.kimotion.com ) in March 2008.

    Golden Gate Technology raised at least $9M ( http://www.ggtcorp.com/ ) and has apparently ceased operations.

    Carbon acquired SOC Designer team from ARM this year, which I would add to your EDA acquisition list.

    In 2007 Open Silicon acquired Zenasis assets (and hired six employees) after Zenasis raised $20M in investment.

    Silicon Design Systems raised at least $6.7M before shutting down.

  6. Sean Murphy

    Daniel I missed your earlier comment. Assets can also include patents and customer relationships. I agree that an engineering analysis may be biased toward re-invention, but if a startup has managed to close at least a few customers normally they can be acquired because it becomes a business decision.

    I haven’t done a formal analysis but it seems to me that comparing 1990’s exits (IPO, acquisition, asset sale, shutdown) with post 2000 for VC backed EDA firms would should more just shutting down. I will have to do more analysis but my intuition is that fewer venture backed firms just shut down in the 90’s without their assets being acquired.

  7. Scott Bloom

    Lets not forget, wether it be the former Telos, or Intel VC, or Xilinx’s VC arm, or Mentors…

    Many of the EDA players or significant users directly invest in EDA startups. It often gives them a leg up in helping direct the acquisition when assets are being garage saled..

    Look at whats happening with Ambric.. Or what happened with AccelChip…

    When a company is not making sales numbers, and the VC’s get antsy.. the VCs change mode and try to sell it.. And when one of the VCs has ties, or works for a Silicon house or a EDA house.. who else do you go to first?

    ANother walking dead EDA.. Liga Systems btw…

  8. » Apache acquires Sequence EDA Thoughts: From an EDA marketing insider

    […] Sequence Posted in September 8th, 2009 by Daniel Payne in Mergers and Acquisitions This is how acquisitions in EDA are supposed to […]

  9. SKMurphy » Growing The Pie in EDA, Part 2: As Revenue Shrinks So Does Analyst Interest

    […] There is an interaction between poor financial performance and lack of analyst coverage, but in three years the number of analysts covering EDA has effectively been cut in half. There have been no new IPO’s and a number of notable VC-backed firms that simply ceased operations without being acquired: Athena Design, Golden Gate Technology, Liga, Silicon Design Systems, and Tera to name a few. Reshape raised $31M and sold assets to Magma but no employees were hired. Daniel Payne blogged about this last December as “Merry Mergers.” […]

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