The behavioral scientists that analize the EDA industry were sure of one thing above others: there would never be a deal between Synopsys and Magma. Their wisdom said that Aart and Rajeev despised one another, there was too much bad blood between the two companies after the legal action by Synopsys pushed Magma to the brink of oblivion, and Magma was a small player in the EDA business that could never again be a serious contender for number 3. The two companies could never do business together was the strongly held belief.

But in business, emotions do not count for much. Sure one must be driven by a desire to succeed, one must be dedicated to his or her work, but, above all, one must be practical.
Magma has been very practical in the last three years. It has shed the vision of growing by copying what Mentor and Cadence are doing, and found its own niche in the industry. The Silicon One Initiative, published very recently, described a focused approach to provide key, and at times unique, technology to IC designers.

Magma has also been showing significant skills in managing its business. It has strung together an impressive sequence of positive financial quarter results, generating cash, and stabilizing its bottom line. Prospective customers no longer have to ask whether or not Magma would be around to support them. The problem now was how to integrate Magma's products into the Synopsys flow that clearly represents the largest and most attractive segment of the market.

Magma's Path to Growth

There were never any real problems integrating with Cadence, through the Open Access door, or with Calibre from Mentor (it works with everyone's flow). This is not to say that gaining market share from Cadence and Mentor would be easy: both companies, in different ways present good competition, but Magma's technology in analog design and timing analysis is clearly better today than what either of these companies can offer.

It is not easy to displace a vendor from a corporate customer. Both Cadence and Mentor have very good marketing and sales staff, and Magma's progress was then by necessity slow. But it was methodic, and it is showing sign of being quite successful.

Magma has clearly found the correct direction for growth in analog design. After years of trying to come up with analog synthesis, the industry had given up. To succeed in synthesis one needs a good standard cells library. Analog and "standard" do not belong in the same sentence when it comes to circuit characteristics. But Magma had found the solution: FlexCells. These allow designers to use standard cells in their designs while giving them the ability to customize each cell to the requirements of the specific circuit.

At the same time Magma's analog simulator, FineSim, has shown to be the leading tool both in execution speed and in capacity to handle large designs. It has become a clear competitor to Synopsys, now aging, solution in this market.
At this year's DAC, Magma's Tekton, a static timing analysis tool, was a clear winner showing much better results than Synopsys' PrimeTime. Yet again Magma had focused on a segment of the market where established, but based on older technology, products were ripe for replacement. PrimeTime, until the introduction of Tekton, had no reliable rivals. Synopsys had grown complacent and Magma has the financial stability to be a competitor customers can count on.

If there is one thing that industry analysts must learn is that Aart deGeus, and thus Synopsys is practical and not subject to emotional vagaries. As John Chilton was quoted to say in talking about the proposed merger, Synopsys could have developed more competitive products, but in the mean time magma's position in the market would have become stronger, so why not purchase the technology and the market position?

Will The Merger Conclude As Proposed?

It is funny how an industry that is mostly ignored by the financial market can attract sudden attention when the sharks smell blood. In that environment blood stands for possible profits, whether or not justified by logic. It did not take much time for firms like Robbins Umeda LLP and Brodsky & Smith LLC to start "investigating" whether or not Magma's Directors acted in the full interest of stockholders in approving the merger.

The material item of contention on their part is that Magma's stock had traded at a price hired than the agreed upon acquisition price earlier this year. So, the reasoning goes, the directors have given Magma away too cheaply. What these people show, once again, is their total lack on understanding of the EDA industry. Sure Magma's stock reached a a closing price of $8.45 on July 7 of this year. But that was right after DAC and right after the successful play of Carl Icahn to install three of his candidates on Mentor's board. The financial industry was paying attention to an industry that quickly disappeared from their radars. Robbins Umeda also claims that they have found "at least three analysts with price targets for Magma's stock ranging from $7.50 to $11.00 a share." This proves absolutely nothing, since on August 26th the same stock was selling at $4.40 and this year it reached a low of $4.06 on the third of October. So is the $7.35 per share price fair?

Let's look at what the financial markets are saying. As I write this piece Magma's stock is trading at $7.12, having jumped $1.40, or almost 25% from its closing yesterday. The price still provides a profit should the merger conclude as expected, although only 3.23% return on the investment over the six month settlement period. But such return, in the climate of volatility seen recently is not a bad bet.

If the market expected the closing price of the merger to be revised upward because it did not meet projections by knowledgeable analysts, the price of the stock would be much closer or even higher than the $7.35 price. This is not the case.

Another possibility is that Cadence or Mentor to claim that the merger is anti-competitive and establishes a monopoly within the industry. But the financial facts argue against this position. Magma's revenue's are at best one tenth those of Synopsys and do not even qualify Magma as one of the six largest EDA companies in terms of revenue. The problem with both Cadence and Mentor is that they do not have the financial strength necessary to purchase Magma, or they would have already done it. It was a no-brainer entry into the Synopsys market! Will the merger go through as proposed? I think so.