UK antitrust regulator puts Synopsys’ $35B acquisition of Ansys under the microscope

The proposed $35-billion merger of chip design software giants Synopsys and Ansys is facing increased scrutiny from global regulators, with the UK’s Competition and Markets Authority (CMA) the latest to launch an investigation.

The CMA has initiated an early-stage inquiry into the acquisition proposal, signaling potential regulatory hurdles ahead for the massive deal.

“The Competition and Markets Authority (CMA) is considering whether it is or may be the case that this transaction if carried into effect, will result in the creation of a relevant merger situation under the merger provisions of the Enterprise Act 2002 and, if so, whether the creation of that situation may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services,” the CMA notification reads.

The “invitation to comment” notification of the CMA has asked stakeholders and interested parties to voice their concerns, after which the regulator will decide whether to escalate the investigation to a formal merger inquiry.

Synopsys, a leading provider of electronic design automation (EDA) tools, announced its intentions to acquire Ansys in January. Ansys, known for its simulation software, helps engineers across various industries, including the semiconductor sector, model and analyze the physical behavior of products.

The merger of these two companies would create a powerful force in chip design and simulation, making the development process more efficient by reducing the chances of errors. However, this could also lead to one company dominating the entire chip design industry, making it harder for competitors without similar capabilities to compete.

“The Synopsys-Ansys merger could certainly impact smaller competitors in the chip design and simulation software market by consolidating critical technology assets under one dominant player,” said Arjun Chuhan, senior analyst at Everest Group.

He pointed out that smaller firms may find it increasingly difficult to compete, as the combined entity could leverage its extensive portfolio to offer “bundled solutions at competitive prices,” thereby squeezing out rivals.

“To ensure a level playing field, regulators could potentially impose conditions on the merger that would help maintain competitive dynamics and prevent market monopolization,” Chauhan added.

The deal’s sheer scale has raised concerns across multiple jurisdictions and UK’s CMA is not the only one to scrutinize the deal.

The US Federal Trade Commission (FTC) is already reviewing the transaction, while competitors and customers of Synopsys and Ansys are urging the European Commission (EC) to take action. Additionally, China’s State Administration for Market Regulation (SAMR) is expected to scrutinize the deal, given both companies’ substantial presence in the Chinese market.

The CMA’s involvement adds another layer of complexity to Synopsys’ acquisition plans. If the regulator finds sufficient cause for concern, the inquiry could progress to a Phase 1 investigation, which assesses the need for a more in-depth Phase 2 probe. A Phase 2 investigation could ultimately lead to the deal being blocked or requiring modifications to the transaction terms.

The acquisition has broader implications for the global semiconductor supply chain, particularly given the current geopolitical tensions and trade restrictions.

“By expanding Synopsys’ reach into diverse engineering sectors, the merger could create a more resilient supply chain, enabling the company to offer integrated solutions across different industries,” said Chauhan. “However, it could also raise concerns about over-reliance on a single provider, especially in critical areas. This consolidation might prompt governments to reassess their strategies around technology self-sufficiency and diversification, potentially leading to stricter regulations and increased investment in domestic semiconductor capabilities to mitigate risks associated with geopolitical uncertainties.”

The outcome of the CMA’s inquiry is critical, not just for Synopsys and Ansys but also for the broader technology sector. The potential creation of a dominant player in the chip design and simulation market could have far-reaching implications, influencing competition and innovation in the semiconductor industry and beyond. With multiple regulators now scrutinizing the deal, Synopsys and Ansys may face a prolonged battle before the acquisition can be finalized.