Avant!'s FrontLine is broadline buy

Electronic News, Oct 14, 1996 by Judy Erkanat

Sunnyvale, Calif.--Moving into IC logic design with its third acquisition in 45 days, Avant! Corp. reached a definitive agreement to merge with FrontLine Design Automation, a three-year-old privately held software company specializing in high-performance hardware description language (HDL) simulation technology.

News of the deal pushed Avant! stock up to a closing price of $33.75 by close of trading Thursday, up 4- 1/2, bringing the value of the transaction temporarily from an estimated $65 million to $74.25 million. The value was back to near its original amount when Avant!'s stock was down 3- 1/2 on Friday.

The transaction, which Avant! intends to account for as a pooling of interests, was approved by both companies' boards of directors and is expected to close in November. Under the agreement, Avant! will issue approximately 2.2 million shares and options to purchase shares of Avant! common stock in exchange for all of FrontLine's outstanding equity interests.

"This gives Avant! a very deep-submicron solution for below 0.25-micron," said Gerald Hsu, Avant!'s chairman, president and CEO. "This merger puts us into the logic simulation market, where we will encounter some new competition. We will follow our established business principles to conduct fair competition in the marketplace. We will not use dirty or nasty tricks to compete. The EDA industry needs a new leader and new business practices. I strongly believe in the philosophy of competition through technology and growth through harmony." Mr. Hsu claimed FrontLine's cycle-based simulation is up to 100x faster than Cadence Design Systems' Verilog-XL and up to 10x faster than other similar products. Before comparing his Anagram and FrontLine acquisitions to Cadence's High Level Design Systems buy (EN, Oct. 7), Mr. Hsu pointed out that all four of Avant!'s mergers--ArcSys/ISS, Anagram, Meta-Software and FrontLine--are non-overlapping technologies.

Jim Douglas, VP of product marketing at Cadence, said FrontLine had no success against VCS or Cadence's Verilog Turbo products, and that no ASIC vendors supported the company's products, leading FrontLine to a niche opportunity where there was less competition. He saw no comparison between Cadence's HLD acquisition and Avant!'s Anagram and FrontLine acquisitions.

Erach Desai, EDA industry analyst for SoundView and a former member of Avant!'s business staff, agreed, and was curious as to why FrontLine had not gone public on its own.

"I think Avant! bought a pretty interesting company," he said. "They have a good product, but I think they needed a bigger distribution channel. Avant! clearly wants to play in the big leagues, but comparing this acquisition to Cadence's of HLD is like comparing apples to oranges, and ending up with a case of sour grapes. I am convinced Avant! bid for HLD and lost."

Some say the current evaluation of Avant! stock is high, others that Mr. Hsu is trying to build another Cadence.

"Avant! is becoming a Cadence clone," said principal analyst Gary Smith of Dataquest. "I'm worried Avant! is spreading itself too thin. It has always been a CAD house, now suddenly it is buying a CAE company. This is the one non-logical move in Gerry Hsu's acquisition strategy."

Mr. Douglas agreed. "This does not augment Gerry's current design flow at all," he said. "It leads us to believe he wants to be a full-line supplier and compete with the big guys, rather than focus solely on physical design and very deep submicron, where he says Avant!'s focus is."

Details of FrontLine's strategy were given by Badruddin Agarwala, the company's president.

"We founded FrontLine to address the HDL simulation speed and capacity bottleneck that designers of high-complexity ICs found when they began working with deep-submicron technologies," explained Mr. Agarwala. "Our strategy was to develop a unified simulation architecture and a complete set of the fastest simulation engines in the industry, and we have been very successful in executing that strategy. To achieve maximum leverage for this technology, we needed a much larger distribution channel. Combined with Avant!, we have an established, powerful distribution channel that would otherwise have taken much longer for FrontLine to build."

"HDL simulation is an important step in mainstream IC design," said Mr. Hsu. "By merging with FrontLine, we will have five of the six major technologies in the deep submicron methodology flow, all best-of-breed technologies." Avant! said it will use FrontLine's Verilog HDL simulation technology to enhance its Planet family of floorplanning tools, providing better integration between front- and back-end design tools.

The closing of the merger is subject to regulatory and FrontLine shareholder approval, the availability of pooling-of-interests accounting treatment and certain other customary closing conditions. Avant! believes the transaction will be non-dilutive for Avant! shareholders.

FrontLine is a privately held company backed by Prabhu Goel, a widely acknowledged proponent of top-down design methodology and founder of Gateway Design Automation. Major FrontLine customers include C-Cube, Digital Equipment, Fujitsu, Hitachi, OKI, Seiko Epson and Silicon Graphics.