SANTA CRUZ, Calif. A move by Mentor Graphics Corp. to sell $100 million in debentures may be a precursor to one or more coming acquisitions, according to both outside sources and Mentor's own announcement. What's not immediately clear is who, if anyone, Mentor might be looking to acquire.
Mentor announced Thursday (July 31) that it will sell $100 million in convertible subordinated debentures that is, corporate bonds in a private placement through Merrill Lynch. The company's announcement stated that proceeds may be used to repurchase stock, as well as for general corporate purposes, "which may include acquisitions of other companies."
One company that Mentor may be eyeing, according to some observers, is Magma Design Automation. There's little product overlap between the companies, and a merger would give the combined company a basically complete RTL-to-GDSII implementation suite. But with a market cap of $613 million, over half that of Mentor's, Magma would not come cheap.
A Mentor spokesperson, who declined comment on whether any acquisition negotiations are underway, hinted that his company may have more modest acquisition goals. "We think we get the best value for an acquisition if it adds to an area where we're already strong," he said. "We're not keen on acquiring in areas where we don't have a strong market presence."
At the end of the June 30 quarter, Mentor reported it had $47 million in cash and short-term investments. The debt sale will give Mentor nearly $150 million that could be used for acquisitions. For a larger acquisition, Mentor could pay a mix of stock and cash.
Mentor last year purchased Ikos, Innoveda, and Accelerated Technologies, but has completed only a few small acquisitions since then. The company's acquisition strategy is more conservative than that of Synopsys or Cadence Design Systems, the Mentor spokesman noted. Typically in the past, Mentor has bought companies that are either somewhat distressed or relatively inexpensive.
Garo Toomajanian, analyst at RBC Capital Markets, noted that Mentor has plenty of cash on hand for operations and that Mentor had a similar debenture sale, for $150 million, just before its acquisition of Innoveda last year.
"I think this might suggest they have some decent size acquisitions they're looking at doing," he said. "I don't know of anything specifically they might have in mind, but I would not expect them to buy technology in an area where they're not already present."