Cadence Design Systems to acquire DSP IP provider Tensilica

Cadence Design Systems announced today that they intend to acquire Tensilica, a provider of Silicon Intellectual Property (SIP) for Digital Signal Processing (DSP) applications, for approximately $380M. The announcement follows Cadence’s February 7, 2013 announcement that they would acquire Cosmic Circuits, a design house based in India, which provides SIP for analog and mixed-signal applications, such as audio and WiFi. Cadence has not disclosed the terms of that deal.

During a telephone conference call with analysts, Cadence’s CFO Geoffrey Ribar said that Tensilica achieved 2012 revenue of $44M, and has been growing at a rate of 35% per year. In 2010, Cadence acquired memory IP developer  Denali Software Inc., which had similar revenue of $43M, for a purchase price of $315M. Cadence CEO Lip-Bu Tan attributed the premium for Tensilica to the unique nature of their DSP IP, but it is more likely that the bump of $65M is due to Tensilica’s high growth rate and the present value of their future royalty stream. Tensilica also had $30M in cash reserves at the end of 2012.

Most of Tensilica’s IP portfolio directly competes with market leader CEVA DSP.  Both companies provide SIP for wireless modems, audio and image processing. CEVA, a publicly traded company which lost out last year to Imagination Technology in their bid to acquire CPU IP vendor MIPS  Technologies,   had a market capitalization value of $347.64M on 3/11/2013.   In 2011, CEVA revenues were just greater than $60M, 34% greater than 2010 revenues.

The comparative analysis indicates that Cadence may have overpaid for Tensilica. As would be expected, company executives would not respond to questions of whether Tensilica had entered into a competitive bidding situation. For Cadence, the acquisition of a high growth rate company like Tensilica gives them a competitive boost against EDA industry leader Synopsys, which has made several acquisitions to build up their own SIP portfolio in recent years. Tensilica fits well with Cadence’s analog/mixed-signal strengths for signal processing. The largest EDA vendors like Cadence and Synopsys can be expected to continue turning to IP for their acquisitions, as the supply of high growth EDA companies is scarce.