Synopsys, a chip design software company, announced on Tuesday that it will buy Ansys for $35 billion in cash and stock, acquiring the maker of software used in the creation of devices ranging from airplanes to Novak Djokovic's tennis racket.

The merger would be the largest acquisition in the technology industry since Broadcom acquired software firm VMware for $69 billion in November.

It could herald additional major mergers if economic mood improves and antitrust enforcers fail to stop agreements, encouraging CEOs to place large acquisition bets.

Highlights: 

• Synopsys to Acquire Ansys for $35 Billion, Marking Largest Tech Merger Since Broadcom-VMware Deal.
• Merger Creates Major Player in Business Software Market, Raises Regulatory Concerns.
• Synopsys and Ansys, Key Players in Chip Design and Simulation, Aim to Enhance Integrated Solutions amid Growing Complexity in Semiconductor Industry.

The offer suggests a per-share value of $390.19, representing a 29% premium over Ansys' latest close on December 21, 2023, according to the businesses.

According to Wells Fargo, the merger will establish a big new participant in an already highly consolidated area of the business software market, creating regulatory uncertainties. Following the announcement, Synopsys shares rose 3.8% to $513, while Ansys shares fell 4.8% to $329.86.

The collaboration comes at a time when major businesses such as Nvidia and Intel are developing significantly more sophisticated chips made up of numerous bits, as well as large computing systems to house the chips. 

Synopsys creates tools for designing semiconductors, in addition to Anysys' products, which create software for analyzing larger electronic systems where those chips are used.

According to Synopsys CEO Sassine Ghazi, silicon companies are hampered in their potential to innovate due to a lack of integrated solutions. "So the market is asking for that integrated solution."

On December 22, Reuters was the first to disclose that Synopsys was in talks to acquire Ansys. Ansys began looking into a sale late last year after receiving inbound acquisition interest from design software business Cadence Design Systems, according to people familiar with the subject.

The agreement comes barely two weeks after Synopsys co-founder and Executive Chairman Aart de Geus handed over the CEO reins to Ghazi.

The pursuit of such a transformational purchase amid a leadership change highlights the commercial value of Ansys' software.

Ansys develops simulation software that engineers, designers, and researchers in industries such as aerospace, defense, automotive, and energy use to examine products. The company's products compete with Autodesk Fusion 360, AutoCAD, and Dassault Systemes Solidworks.

Synopsys, for its part, is a pillar of chip design businesses such as Advanced Micro Devices, Intel, and Nvidia, but it has also profited from a growing trend of organizations like Microsoft and Alphabet's Google bringing certain chip design activities in-house.

The agreement would combine Synopsys' semiconductor electronic design automation (EDA) tools with Ansys' simulation and analysis offerings. The EDA industry is already heavily consolidated between Synopsys and Cadence, which have similar market capitalizations.

Deal could trigger regulators' scrutiny.

Though Anysys is not a direct competitor to either business, the transaction may attract regulatory scrutiny, particularly in critical areas such as China, where approval times have become more difficult to forecast.

Ghazi and Ansys CEO Ajei Gopal told Reuters that the boards of both businesses hired independent counsel to assess regulatory risk.

"Based on many, many, many discussions, we believe that this deal should be done in the first half of '25," Ghazi said in a statement. He said, "we gave ourselves 24 months with the priority and objective to get it done."

Synopsys and Ansys have both seen their stock prices skyrocket in the last year as the artificial intelligence industry has grown rapidly.

They formed a corporation in 2017 to provide chip designers with technologies for analyzing chips for quality standards and making the overall design process more efficient.

The deal is expected to increase Synopsys' adjusted earnings in the second full year following closing and be "substantially" accretive thereafter.

If the transaction is terminated under certain conditions, including antitrust difficulties, Synopsys will be required to pay Ansys a $1.5 billion termination fee.

If Ansys terminates the agreement to accept a better proposal, it will have to pay the design software business $950 million.