Mentor Graphics: Target for SilverLake?

Mentor Graphics is No. 3 in the Electronics Design Automation (EDA) market, after Cadence and Synopsys. The EDA market itself is not that large, roughly $4 Billion, declining rapidly to $3.5 Bilion due to its tough price-wars. Such a market cannot support 3 major players, and Mentor ought to be a classic acquisition target for Silverlake or Francisco Partners to be subsequently chopped off into pieces.

More specifically, Mentor has a few good franchises that independently could be very interesting businesses for other companies to acquire: their Calibre Physical Verification portfolio, the PCB business, the FPGA tools, for example. However, it is otherwise a very badly put together product portfolio that does not leverage channels, customer segments, or design platforms. There is no organizing principle behind the product strategy.

Chopped into bite-sized pieces, however, it IS a very interesting asset that can make a private equity firm beaucoup money. The PCB tools market is about $500 Million, in which Mentor is the leader, along with Cadence and Zuken as two other serious players. The products are sold primarily through VARs to 3000-5000 Small-Medium businesses worldwide. A major trend in the Electronics industry is that purely Mechanical products are morphing into Electro-Mechanical products, and hence absorbing new Electronics. Mentor’s PCB business could well become a good vehicle with which to align with such a trend.

But this has nothing at all to do with the Calibre business, which attaches itself to Physical IC Implementation tools, and is serviced by a completely different channel – one in which Mentor is missing the anchor component: a market leading Place and Route franchise.

Now that big private equity deals is the rage, this one should be a no-brainer!

This segment is a part in the series : Mentor Graphics