Cadence Design Systems Inc. (CDNS) recently completed the acquisition of Switzerland-based BETA CAE Systems International AG, as announced in March 2024. The acquisition, valued at approximately $1.24 billion, involved 60% of the consideration in cash and 40% through the issuance of Cadence stock to BETA CAE shareholders. Headquartered in Lucerne, BETA CAE specializes in offering multi-domain engineering simulation solutions, with a focus on mechanical/structural, CFD, and EM simulations.
BETA CAE’s flagship products, ANSA and META, have solidified its presence in various verticals, particularly the automotive sector. The acquisition is seen as strategically important for Cadence as it complements the company’s system analysis portfolio and broadens its range of multiphysics system analysis offerings. With BETA CAE generating approximately 90𝑚𝑖𝑙𝑙𝑖𝑜𝑛𝑖𝑛𝑎𝑛𝑛𝑢𝑎𝑙𝑟𝑒𝑣𝑒𝑛𝑢𝑒𝑠,𝐶𝐷𝑁𝑆𝑒𝑥𝑝𝑒𝑐𝑡𝑠𝑖𝑡𝑡𝑜𝑐𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑒𝑎𝑟𝑜𝑢𝑛𝑑40 million to its 2024 revenues. However, the acquisition is anticipated to dilute Cadence’s non-GAAP earnings per share by approximately 12 cents, with expectations for accretion in 2025 based on debt repayment and share repurchase strategies.
Cadence’s growth strategy has been bolstered by a series of strategic acquisitions, with Invecas, Intrinsix, Pointwise, NUMECA, and OpenEye Scientific Software among those mentioned. These acquisitions have enabled Cadence to expand its service offerings, talent pool, and market presence across various industry verticals. The company’s strong cash balance, with approximately $1.01 billion in cash and cash equivalents as of March 31, 2024, positions it well for further strategic investments and acquisitions.
While Cadence’s acquisition spree has contributed to its growth and market presence, it has also raised concerns about the impact on its balance sheet due to a significant amount of goodwill and intangible assets. As of March 31, CDNS’ goodwill and intangible assets totaled approximately $1.91 billion, representing 33.4% of total assets. Despite these considerations, Cadence remains a leader in the electronic system design space, offering computational software, hardware, and IP to enable engineers to develop various types of ICs.
In the broader technology space, Cadence carries a Zacks Rank #3 (Hold). However, some better-ranked stocks worth considering include Badger Meter (BMI), Arista Networks (ANET), and NVIDIA Corporation (NVDA), all with a Zacks Rank #1 (Strong Buy) each. These companies have shown strong performance and growth potential, making them attractive options for investors looking for opportunities in the technology sector.