Cadence Design Systems On The Block

The New York Times is reporting that Cadence Design Systems (CDNS) may be talking to private equity interest at KKR and Blackstone. The firm makes software used to design chips. According to The Times: "Cadence is regarded as one of the most innovative chip software makers."

The question about Cadence is why anyone would want the company? Its shares have almost doubled this year to $23. Synopsis (SNPS) which is in a closely related business trades for 3.3 times sales. Magna Design (LAVA), another company in the industry trades for 3.1x. Cadence has a multiple of 4.1x, and its has a trailing twelve-months P/E of 42.

Cadence's growth has not been phenomenal. In 2005, its revenue was $1.329 billion. In 2006, the figure was $1.484 billion. 

Cadence may be bought, but whoever gets it will likely pay too much.

Douglas A. McIntyre