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Mentor Graphics: Target for SilverLake?

Posted on Monday, Apr 11th 2005

Mentor Graphics is No. 3 in the Electronics Design Automation (EDA) market, after Cadence and Synopsys. The EDA market itself is not that large, roughly $4 Billion, declining rapidly to $3.5 Bilion due to its tough price-wars. Such a market cannot support 3 major players, and Mentor ought to be a classic acquisition target for Silverlake or Francisco Partners to be subsequently chopped off into pieces.

More specifically, Mentor has a few good franchises that independently could be very interesting businesses for other companies to acquire: their Calibre Physical Verification portfolio, the PCB business, the FPGA tools, for example. However, it is otherwise a very badly put together product portfolio that does not leverage channels, customer segments, or design platforms. There is no organizing principle behind the product strategy.

Chopped into bite-sized pieces, however, it IS a very interesting asset that can make a private equity firm beaucoup money. The PCB tools market is about $500 Million, in which Mentor is the leader, along with Cadence and Zuken as two other serious players. The products are sold primarily through VARs to 3000-5000 Small-Medium businesses worldwide. A major trend in the Electronics industry is that purely Mechanical products are morphing into Electro-Mechanical products, and hence absorbing new Electronics. Mentor’s PCB business could well become a good vehicle with which to align with such a trend.

But this has nothing at all to do with the Calibre business, which attaches itself to Physical IC Implementation tools, and is serviced by a completely different channel – one in which Mentor is missing the anchor component: a market leading Place and Route franchise.

Now that big private equity deals is the rage, this one should be a no-brainer!

This segment is a part in the series : Mentor Graphics

. Target for SilverLake?
. LBO Recommended

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The FPGA and PCB businiesses are converging. Mentor has a cool new product that allows concurrent FPGA and PCB design. This concurrent design allows for the pin-out on the chip to be optimized with the routing on the PCB. I agree that the Calibre product is unrelated to the PCB biz. However, EDA is a market of niche products because of the way the tools are purchased–engineers looking for best of breed. even CDN and SNPS flows are really just an amalgamation of point solutions.

Ray Tuesday, April 26, 2005 at 2:59 PM PT

Ray, You cannot get any channel leverage with that kind of disjointed portfolio of products. The EDA is channel is way too expensive, and Mentor doesn’t have enough products to feed that kind of a channel structure. Sramana

Sramana Mitra Tuesday, April 26, 2005 at 9:19 PM PT

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