By Tamanna Desai,
Money and Investing Writer
As the technology industry continues to grow at a rapid pace, engineering giants such as Siemens are taking big strides and buying out software companies that they are struggling to compete with.
For a company like Siemens, that produces power generators and energy-efficient technologies, executing buyout deals are essential for the company’s survival.
For $4.5 Billion Siemens bought Mentor Graphics which manufactures the software chips needed for Siemens to expand their technologies to bigger industries such as the transportation industry according to reuters.com.
One of the main reasons why Mentor-graphics agreed to the deal is due to their declining profits. The software company was under pressure from shareholders.
It has also been reported that Siemens is putting less focus on consumer products, and instead shifting their focus to industrial clients.
CNBC states that, “Siemens said on Monday it would pay $37.27 per share for a Mentor… a 21 percent premium to Friday’s closing share price”.
Investors are bullish on Siemens and are saying that this deal with definitely prove to be in the best interest of Siemens. What could be most important is the high probability that their earnings before interest and tax will increase, as a result of the acquisition. The deal will cut down quite a bit on their expenses, and the company anticipates that there may be some job cuts in the future.
This deal is the most recent purchase for Siemens since they bought CD- adaptor for $970 million in January.
The company’s main revenue generating products are in the energy and healthcare industry. This deal will definitely help them expand and diversify their portfolio.
Despite the success of the deal, Siemens still has to worry about their competitors and what they are doing to stay ahead. Some of their competitors include GE, Philips and Skoda. GE is looking to buy two tech start-ups that would help leverage the company’s digital business. The company is heavily looking into the software industry and trying to firmly grasp advantage over it.
It will be interesting to see how the deals both Siemens and GE make will impact the competition between the two technology giants.
Seton Hall student and ITM major, Jeffrey Joyce said that, “Investing in Siemens AG is something I would definitely consider for the future.
The industry that Siemens serves has huge potential and the energy efficient technologies that they manufacture will be focus of our generation.
I believe it is also important to look at the suppliers of big companies similar to Siemens.
The key to success for them is how well their suppliers are doing. I always take that into consideration when I am researching a company to invest in.”
Siemens end of day stock price was $106.65 while Mentor-graphics closed at $36.49. Siemen’s direct competitor, GE closed at $30.67.
A version of this article appeared in the Tuesday, November 22nd print edition.
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