Wednesday, July 6, 2011

Show me the money - the valuation of Apache Design Solutions

The July 1st, 2011 EE Daily News article "Apache and AWR acquisitions offer growth to the EDA industry" provided a review of two recent EDA industry acquisitions - the ANSYS purchase of Apache Design Solutions, and the National Instruments purchase of AWR.

Prior to the ANSYS acquisition, Apache (on March 14) had filed a form S-1 with the U.S. SEC (Securities and Exchange Commission), for a proposed IPO (initial public offering) of shares with an estimated value of $75 million. In their June 30 announcement, ANSYS offered to acquire Apache for $310 million in cash. The juxtaposition of those two valuations may have inadvertently implied a 4X increase in the company's valuation to some readers, which is not the case.

Apache Design Solution's internal pre-IPO valuation was $6.80/share (source APACHE S-1 dated March 14, 2011)

According to their S-1 filing, Apache had "17,190,188 shares of common stock outstanding as of February 28, 2011". Also, as the table above indicates, Apache started offering stock options to employees in 2009. There is a mix of science and guesswork in arriving at a fair value for the stock of a private company, and Apache discusses this in their S-1 along with a reference to standard practices published by the American Institute of Certified Public Accountants.

Nevertheless, by multiplying the 17 million outstanding shares by the latest estimated fair value, we see that Apache valued the company at  approximately $117 million in March. So, the $310 million ANSYS acquisition multiple is 2.65X, not 4X.

Another way to look at it is that an IPO is an offering to sell a portion of a company, hence the resulting dilution, and not the entire company. If one assumes that Apache was willing to accept ~20% dilution for the $75 million IPO proceeds, then their "pre-money" (i.e. 80% of post-IPO) valuation would be $300 million.

Without getting deeper into comparative balance sheet analysis, the estimated $300 million valuation (and $310 million purchase price) puts the Apache acquisition well in line with Cadence's $315 million acquisition of Denali in 2010. At the time, Denali's trailing annual revenues were approximately $43 million. Apache reported 2010 revenue of $44M.

1 comment:

marketingeda said...

Mike, thanks for the financial analysis. Lucky employees to get those 900K shares of stock just before the merger. A very nice financial exit for Apache share holders.