Electronic design solutions company Cadence Design Systems, Inc. (NYSE:CDN; Nasdaq:CDN) has bought Israeli verification process automation company Verisity Ltd. (Nasdaq: VRST). The acquisition price is $12 per share, representing a 62% premium over the stock market price. On the basis of Verisity's 23.5 million registered shares, the total price will be $280 million. The acquisition is a cash deal.
On completion of the acquisition, Verisity CEO Moshe Gavrielov will join the Cadence executive management team. Cadence said that Verisity founder and CTO Yoav Hollander would play an integral role in setting its verification technology direction.
Gavrielov will gain $7 million cash from the acquisition deal, in addition to $9 million he has pocketed from sales of shares in Verisity during the seven years he has served as the company's CEO. Hollander will gain some $16.3 million.
Market sources said that although the sale price seemed impressive, it should be borne in mind that Verisity's share has never been a star performer, and that the company is not very profitable.
The acquisition was therefore made at a sales multiple of 4 on forecast sales for 2005, which is the norm in the industry. Since the beginning of 2004, Verisity stock has fallen about 40%, although since August the trend in the share has been generally upwards.
"The global electronics industry is under unprecedented pressure to develop and bring to market innovative products as quickly as possible," said Cadence Design Systems president and CEO Mike Fister. "Our acquisition of this highly innovative team and successful business is consistent with Cadence's focus on enabling the world's leading electronics companies to address the demand for increasingly complex systems." "Customers are demanding solutions that automate the entire verification process and make it more predictable from planning to closure," said Gavrielov. "This requires the integration of our VPA solution with a unified verification infrastructure. The combination of the two companies will greatly accelerate the delivery of these integrated solutions."
Cadence is considered he world's largest supplier of electronic design technologies and engineering services. The company has 4,850 employees. Its 2003 revenue totaled $1.1 billion.
For the third quarter of 2004, Verisity reported record revenue of $15.5 million, 13% more than in the previous quarter. Its guidance for 2004 as a whole is for revenue of $57.0-57.3 million, and a loss of $1.2-1.4 million, or $0.05-0.06 per share. The company has three main types of customer: semiconductor companies, which account for 51% of its sales; systems companies (41%); and start-ups and IP companies that develop and sell hardware blocks (8%).
Verisity started operations in 1996 as InSpec Validation Systems. It was renamed Verisity in March 1997. The company's principal executive offices are in Mountain View, California, while its principal research and development offices are in Rosh Ha'ayin, Israel.
Published by Globes [online], Israel business news - www.globes.co.il - on January 13, 2005