( ESNUG 497 Item 4 ) -------------------------------------------- [01/26/12]
From: Mike Demler <mike.demler=user domain=eedailynews not calm>
Subject: Demler on why LAVA was lucky to get $507 million to be acquired
Hi, John,
Synopsys agrees to buy Magma for $507 million, $7.35 per share. With Magma
ranked as the 4th largest company in the EDA industry in terms of revenue,
this low valuation stands in dramatic contrast to other EDA acquisitions
over the last 12 to 18 months.
At the close of trading just before the deal was announced, Magma had a
market capitalization of $391.53 million, and a share price of $5.72.
Synopsys' offer then represents a premium of just $115 million - less than
Magma's most recent reported annual revenue of $139 million at the end of
April, 2011. (That $507 million is a 3.6X revenue offer.)
Contrast the Synopsys-Magma marriage to the most recent large EDA M&A
transactions:
(May 13, 2010) Cadence acquires Denali for $315 M. (7.3X revenue)
Estimated annual revenue $43 M.
(June 10, 2010) Synopsys acquires Virage for $315 M. (6.7X revenue)
Virage's previous annual revenue $47 M
(June 30, 2011) ANSYS acquires Apache for $310 M. (7.0X revenue)
Apache reported 2010 revenue of $44 M.
With $139 annual revenue, shouldn't Magma recieved at least a 6X ($834 M)
offer? Did Synopsys just steal a competitor?
Much of the answer to the apparent discrepancy in valuations can be
discerned from the chart of Magma's 5-year trailing annual revenue.
Comparing financial performance for Magma's most recently closed fiscal
year with their 2007 results shows a Compound Annual Growth Rate (CAGR)
of approximately -5%. In their 2011 Annual Report, Magma stated:
"We have a history of losses, except for fiscal 2003 and fiscal
2004, and we had an accumulated deficit of approximately $387.1
million as of May 1, 2011. If we continue to incur losses, the
trading price of our stock may decline."
If Magma were to continue to decline at a rate of 5% per year, their
next 5 year annual LAVA revenues would look something like:
2012 projected: $132,321,700
2013 projected: $125,705,620
2014 projected: $119,420,330
2015 projected: $113,449,320
2016 projected: $100,000,000
Magma 5-year Total: $590,896,970
In other words, based on this model, Synopsys achieves a positive return
on their $507 M investment in the 5th year.
Compare this to the most recent acquisition from the $40 M+ club, ANSYS'
acquisition of Apache for $310 M. The Form S-1 which Apache had filed
for their aborted public offering shows a 3-year revenue history of:
2008 Annual Revenue: $25,695,000
2009 Annual Revenue: $34,601,000
2010 Annual Revenue: $44,047,000
Prior to their acquisition, Apache had a CAGR of 20%. Projecting that
growth forward for a 5-year period, the same Apache ROI period as the
above Synopsy-Magma acquisition, we see:
2011 projected: $52,856,000
2012 projected: $63,428,000
2013 projected: $76,113,000
2014 projected: $91,336,000
2015 projected: $109,603,000
Apache 5-year Total: $393,336,000
So, just like Synopsys, ANSYS would also achieve a positive return on
their $310 M Apache investment in the 5th year.
While these models are somewhat simplistic, they nevertheless serve
the purpose of demonstrating how a company like Magma, at more than
three times the size (in revenue) of Apache, could agree to be acquired
at a price of only 3.6X revenue.
With a deficit of $387 M, and prospects for further share price declines,
LAVA stockholders should be thrilled to cut their losses in this deal.
- Mike Demler
EE Daily News San Jose, CA
Join
Index
Next->Item
|
|
