On the last trading day before Christmas, the share price of US technology company Ansys rose sharply due to takeover speculation surrounding the software company. After several news agencies (Bloomberg, Wall Street Journal, Reuters) reported on a possible deal, analysts also voiced their potential price targets.

Ansys is the market leader in simulation software. In the past, testing models was an expensive method of determining if a newly developed part would work in real-world applications. However, there was no other way to test if an idea was viable. Today, engineers can use simulation software to run their designs to gain valuable insights and optimize the design while reducing development costs.

Ansys is by far the market leader in this field. According to the company’s own figures, the US company has an annual turnover (2022) of $2.06 billion, about twice that of its next largest rival. Unlike its competitors, Ansys offers multiple solutions in many different areas such as optics, semiconductors and fluids. This way, Ansys software programs can be integrated with each other to create multi-layered solutions, for example, structural and thermal analyses on a circuit board.

The customer portfolio includes many well-known large corporations. Whether Airbus, Microsoft, Volvo, Nestlé, Samsung or oil company Total. Even Nvidia uses the platform to simulate the physical limits in chip development.

Ansys continues to be on the growth path. In the first nine months, Ansys’s revenue rose 6.8% to $1.46 billion. Excluding currency effects, revenues increased by 7.6%. 47.5% of the revenue was generated in the US. Another 27.3% came from the Asia-Pacific region (of which 9.7% was in Japan) and 25.2% in the EMEA region (Europe, Middle East and Africa).

At the end of the day, a net profit of $423 million was recorded. This corresponds to a profit margin (i.e. profit in relation to revenue) of 28.8%. Earnings per share were $4.85. For the full year, Ansys expects earnings per share between $8.24 and $8.75. This values the stock at approximately 42 times expected earnings.

Recurring revenues are attractive. At first glance, the high valuation may have several reasons. On the one hand, Ansys is by far the leading company in the simulation software market. On the other hand, the predictability of business development is exceptionally high. Recently, 83% of total revenues were recurring.

Takeover rumors are circulating. At the end of last week, takeover rumors came into play. According to reports, the company is working with advisors to assess the interest. A final decision has not yet been made.

Apparently, chip designer Syopsys (i.e. also a customer of Ansys) had previously negotiated with the company about a possible takeover, according to a Reuters report on Friday. The offers Ansys has received are reportedly well above $400 per share. A conclusion could be announced in the coming weeks.

Names of multinational companies such as Siemens, Honeywell and GE, which “have shown interest in software in the past”, have also been mentioned as possible buyers. Whether there will really be a deal remains to be seen. In the short term, the rumors have already given the share price a significant boost.