Siemens to Expand Its Digital Industrial Portfolio with Acquisition of Mentor Graphics

Siemens is further building its Vision 2020 to shape Digital Industrial Enterprise by expanding its unique portfolio for industrial software. Siemens and Mentor Graphics announced that they have entered into a merger agreement under which Siemens will acquire Mentor for $37.25 per share in cash, which represents an enterprise value of $4.5 billion. The offer price represents a 21 percent premium to Mentor's closing price on November 11, 2016, the last trading day prior to the announcement. Mentor's Board of Directors approved and declared advisable the merger agreement, and Mentor's Board of Directors recommends the approval and adoption of the merger agreement by the holders of shares of Mentor common stock. Mentor shareholder Elliott Management has committed to support the transaction.

This acquisition extends Siemens' leading Digital Enterprise Software portfolio with Mentor's well established electronics IC and systems design, simulation, and manufacturing solutions. These capabilities are essential for today's smart connected products, such as autonomous vehicles. The combination provides mechanical, thermal, electronic and embedded software tools, which will allow Siemens' customers to further accelerate their innovation, drive production efficiencies, and optimize the operation of their products in the field. Now, for the first time, quality, efficiency, flexibility, safety and speed can be optimized across technical domains, throughout the entire lifecycle and for the entire extended enterprise.

Mentor is headquartered in Wilsonville, Oregon, U.S., and has employees in 32 countries worldwide. In its fiscal year ended January 31, 2016, Mentor had over 5,700 employees and generated revenue of approximately $1.2 billion with an adjusted operating margin of 20.2 percent. Siemens expects these attractive margins to continue in the future and contribute significantly to the Product Lifecycle Management (PLM) software business of Siemens Digital Factory (DF) Division, which Mentor will join. Mentor serves a large, diverse customer base of marquee systems companies and IC/semiconductors companies with over 14,000 global accounts across communications, computer, consumer electronics, semiconductor, networking, aerospace, multimedia, and transportation industries. Mentor is viewed as a global leader in strategic industry segments, including IC design, test and manufacturing; electronic systems design and analysis; and emerging markets including automotive electronics.

Siemens expects to achieve synergies through a combination of revenue growth and anticipated margin expansion, with a total EBIT impact of over €100 million within 4 years from closing the transaction. Additionally, the transaction is expected to be EPS accretive within three years from closing. Closing of the transaction is subject to customary closing conditions and is expected in Q2 of calendar 2017. Mentor will be part of the PLM software business of Siemens' DF Division. DF is the industry leader in automation technology and a leading provider of PLM software.

Dick Slansky, Senior Analyst for PLM, commented: "This aquisiton by Siemens is exactly in line with their Digitalization strategy and the overall digital transformation that is taking place across industries. The integration of mechanical, electrical, and embedded software systems has been taking place for several years now, and this kind of systems engineering is at the core of the IoT/IIoT and the smart connected products and factories that represent the next generation of smart connected ecosystems. Mentor Graphics is a leader in embedded systems development technology, as well as electronic systems for automotive and A&D. As a technology that is being added to the Siemens PLM solution portfolio, this acquisition will serve to fullfill and enable Siemens' Digital Transformation vision." 

Keywords: Design Automation, Industrial Software, System-on-Chip (SoC), Embedded Software Design, Product Lifecycle Management (PLM), Digital Factory (DF), ARC Advisory Group.