Renesas makes cracking bid for Aussie software champion Altium

Altium makes the software that allows groups to develop chips and semi-conductors for electronics. Picture: iStock

It’s always a gamble knocking back a buyout proposal, but Altium’s directors now look like heroes rejecting Autodesk’s offer in 2021 for about $5bn.

Almost three years on, Altium is now in a position which most Australian listed companies dream of – having a wealthy Japanese suitor coming along with a knock out price to buy the business that can’t be refused.

Listed with a $6.5bn market value, the Australian group that makes the software that allows groups to develop chips and semi-conductors for electronics, is about to be bought by Japan’s Renesas Eletronics for $68.50 a share, a price that values the group’s equity at $9.1bn.

It’s a win for investment bank JPMorgan advising Altium and Deutsche Bank working for Renesas Eletronics in what’s been a relatively quiet market on the deals front of late.

The offer is a premium of 34 per cent to the closing price of Altium shares on February 14 and the Altium shares have soared 28 per cent on the news to $65.83.

The pair have been in negotiations over the past year, and they are well known to each other, being in a partnership since the middle of last year.

While Altium provides the software that allows groups to develop chips and semi-conductors, Renesas designs those physical parts.

It enables Renesas to become more vertically integrated across the semi-conductor space.

At 18 times revenue and 50 times earnings before interest, tax, depreciation and amortisation, it is considered by experts in the industry as a very large price.

And while there is expected to be some more mergers and acquisitions happening this year as comfort develops around the outlook, most are treating this deal as a unique situation with respect to the price offered.

Japanese suitors are known to take a shine to Australian companies, and while they take their time weighing up targets, it’s often worth the wait, as they have a reputation for paying up for businesses they deem good quality.

Last year, Japan’s Kirin bought vitamins company Blackmores for $1.9bn, and Japanese groups have bought many more Aussie companies, with a particular interest in the consumer and financial services sectors in recent times.

Since Altium rejected Autodesk’s offer in 2021 that was initially at $38.50 per share and then later sweetened, the company has experienced strong demand for its products, and it has created operating leverage by moving its software to the cloud.

Before that Autodesk offer, at around 40 times revenue, Altium’s share price was around $27 and shareholders thought an offer of $40 more reflected the true value of the company.

Demand for semiconductor parts is strong as electronics become more complex and require more software to design parts and innovation continues around artificial intelligence.

Chaired by Sam Weiss, Altium, while listed here, bases itself in San Diego.

Altium brings $US263m revenue a 36.5 per cent earnings before interest, tax, depreciation and amortisation margin and 77 per cent recurring revenue, as reported for the year to June.

Renesas plans to finance the transaction with bank loans and cash on hand and is expected to close in the second half of 2024.

It is said to be immediately accretive to the Renesas earnings without synergies.

For the year to June, Altium reported a 19.9 per cent lift in net profit to $66.3m from $55.5m in the previous corresponding period.

RBC analyst Garry Sherriff said in a note that with the offer recommended by the board, it looked like a done deal and he tipped Altium as a target in January.

Other transactions in the design software space include Synopsys buying Ansys for $US35bn in mid-January in what was a 29 per cent premium to the undisturbed share price and 16 times its sales and 48 times its EBITDA.