Cadence Design: Maintaining $240 Fair Value Estimate as Firm Said to Be Eyeing Bentley Systems

We maintain our $42 fair value estimate for narrow-moat Bentley Systems for now, as Reuters reported April 18 that the company is exploring strategic options, including a possible sale of the business. We also maintain our $240 fair value estimate for narrow-moat Cadence Design Systems, which Reuters suggested is among the companies interested in acquiring Bentley. Shares of Bentley appear modestly overvalued to us on a fundamental basis if no deal were to go through. We continue to view Cadence as overvalued, independent of this news, and with no guarantee that Cadence will emerge as the winning bidder. Cadence's shares were down about 3% by noon, and we surmise that the market is reacting negatively to this report, as investors might fear that Cadence could potentially overpay for Bentley. Cadence will report earnings on Monday, April 22, so if it were to win the bid for Bentley, we wouldn't be stunned if the merger were to be consummated over the weekend and discussed in more detail Monday.