In April, when Magma Design Automation Inc., led by Co-founder, Chairman & CEO Rajeev Madhavan, announced the acquisition of Vivek Raghavan co-founded Mojave Inc. for about $140 million, many commentators termed the deal "pricey" pointing out that Mojave had no products, zero revenues and just 10 employees.
While it doesn't exactly justify the valuation of the Mojave acquisition, TheDeal.com has published a detailed article explaining why Madhavan is in a hurry to grow Magma through acquisitions. (Magma had also acquired Guruprasad Rao co-founded Silicon Metrics Corp., an Austin, TX based provider of chip design solutions, in November 2003).
According to the article, EDA companies need to have $300-400 million worth of sales to be able to porovide local support to chip OEMs in various parts of the world. "If you have $100 million in revenue, you might be able to afford an office in San Jose and Paris and Tokyo, but Helsinki and Osaka would be too expensive," Mentor Graphics Chairman & CEO Walden Rhines says in the article.
That's why, the article explains, the EDA industry is traditionally cut into two camps: "the big three" (right now, occupied by Cadence Design Systems, Synopsys and Mentor Graphics) and the large group of start-ups focusing on novel and niche design automation software products. "You can be small and very focused, or one of big three, but it is very hard to be in between," Rhines adds.
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