Siemens to Buy Mentor Graphics for $4.5B

The acquisition of a pioneer in design automation software "decisively extends" Siemens's portfolio of tools for digitizing factories.
Matthew HellerNovember 15, 2016
Siemens to Buy Mentor Graphics for $4.5B

German engineering giant Siemens has agreed to buy Mentor Graphics in a $4.5 billion deal that will expand its portfolio of industrial software tools for digitizing old-line factories.

Mentor, which is based in Wilsonville, Ore., has pioneered design automation software ranging from integrated circuit  and system-on-chip design to automotive electronics solutions. It will become part of Siemens’s digital factory division.

“This acquisition decisively extends Siemens’ leading digital enterprise software portfolio,” Siemens said in a news release, adding that Mentor’s capabilities are “essential for today’s smart connected products such as autonomous vehicles.”

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Siemens will pay $37.27 a share for Mentor, a 21% premium to Friday’s closing price. The deal is its largest in the industrial software sector since it bought UGS for $3.5 billion in 2007.

As The Wall Street Journal reports, Siemens and its competitors, including General Electric and Robert Bosch, “have been working on digitizing their own manufacturing processes and developing software platforms and automation tools to sell to other industrial players.”

GE has said it would invest $1.4 billion in its fast-growing software business this year.

Siemens’s Digital Factory unit last week posted a 10% rise in profit for the fourth quarter of fiscal year 2016. Mentor generated revenue of about $1.2 billion for the fiscal year with an adjusted operating margin of 20.2%.

“Siemens expects these attractive margins to continue in the future and contribute significantly to [its industrial] software business,” it said.

According to the companies, the combination of Siemens and Mentor will create “a unique digital industrial player” that offers “mechanical, thermal, electrical, electronic and embedded software design capabilities on a single integrated platform.”

“Siemens is an ideal partner with financial depth and stability, and their resources and additional investment will allow us to innovate even faster and accelerate our vision of creating top-to-bottom automated design solutions for electronic systems,” Mentor CEO Walden C. Rhines said.

The German firm expects to generate synergies of 100 million euros ($108.6 million) in earnings before interest and taxes within four years.