Chip design software provider Synopsys on Tuesday said it will acquire electronic systems simulation and analysis software maker Ansys for$35 billion.

The acquisition, according to Synopsys CEO Sassine Ghazi, will cater to the increasing market demand for developing an integrated offering capable of semiconductor design simulation and analysis.

While Synopsys, rival to Cadence and Mentor Graphics, makes the software required to design semiconductor chips, Ansys makes software suites that provide capabilities to run simulations and analysis on electronic systems that are running on these chips.

Ansys competes with AutoCAD, Autodesk, and Dassault Systemes.

Synopsys and Ansys said the two companies have "highly complementary businesses" and significant expansion opportunities. So much so, that Synopsys expects its total addressable market (TAM) to increase by 1.5 times to about$28 billion.

This combined TAM is expected to grow at about 11% (CAGR) as the need for the fusion of electronics and physics across industries accelerates, the companies said.

These growth areas include electronic design automation (EDA) and other industries, such as automotive, aerospace, and industrial, where Ansys claims to have an established presence and successful go-to-market experience.

"The combined company expects to achieve approximately$400 million of run-rate cost synergies by year three post-closing and approximately$400 million of run-rate revenue synergies by year four post-closing, growing to more than approximately$1 billion annually in the longer-term," the companies explained further.

Synopsys' acquisition of Ansys, according to Pareekh Jain of Pareekh Consulting, has larger implications on the overall engineering software market, which was estimated at$33 billion in 2022, and expected to grow at about 18.8% CAGR from 2023 to 2030.

"The deal is significant as it is rare for an electronics design automation (EDA) company to acquire a company to expand into the larger engineering design software market," Jain said, adding that a similar deal took place in 2016 when Siemens acquired Mentor Graphics.

Siemens is a big engineering software company, whereas Mentor Graphics is an EDA company. 

The deal is unlikely to impact the core chip designing market, Jain said.

However, vendors offering design and simulation software in industry sectors, such as automotive, aerospace, and industrial equipment, may feel the pressure to also develop full stack design capabilities from chips to whole engineering systems, Jain added.  

The deal is also significant as most chipmakers, including Nvidia, AMD, and Intel, along with cloud service providers, such as Microsoft, AWS, Google and IBM are looking to develop their own chips to cater to the growing demand for supporting AI and generative AI-related workloads.

The deal is expected to close in the first half of 2025. Evercore is serving as financial advisor to Synopsys and Qatalyst Partners LP is serving as financial advisor to Ansys.

As per the terms of the acquisition, Ansys will have to pay a penalty of$950 million if it accepts another proposal from a different buyer.