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Why Altium (ASX:ALU) shares failed to trade this morning

Altium Limited (ASX: ALU) shares have been placed on a trading halt just moments before the market opened Monday morning.

The company provided no detail other than “trading in the securities of the entity will be temporarily paused pending a further announcement”.  

Altium is an Australian technology company that focuses on creating computer-based electronics design software for engineers who design printed circuit boards (PCB).

ALU share price

Source: Rask Media ALU 1-year share price chart

Speculation over Altium shares bidder

The Australian Financial Review reported this morning Altium has received a takeover approach over the weekend.

Sources said CEO Aram Mirkazemi and Chairman Sam Weiss have held talks with the potential bidder over the past several months. The company has enlisted the help of investment bank, Goldman Sachs as its “defence advisor”. 

Altium shares are down 31.6% since a share price high of $38.81 in October 2020. The onset of COVID-19 forced Altium to discount its software temporarily and extend payment terms to customers. The company announced a subdued half-year result in February, further contributing to the share price decline.

The share price closed at $27.21 on Friday with shares yet to trade today. Altium currently has a market capitalisation of $3.6 billion.

The article did not name the bidder or what price was offered. However, it is speculated to be a company in the PCB industry rather than a private equity buyer.

Potential takeover candidates

A potential takeover candidate with sufficient capital to acquire Altium is Autodesk Inc. (NASDAQ: ADSK). The company currently has a market capitalisation of $62.6 billion. 

Autodesk sells PCB design software, Easily Applicable Graphical Layout Editor, commonly referred to as EAGLE. Autodesk has a history of acquisitions, previously acquiring EAGLE in 2016 and more recently cloud-based product lifecycle startup Upchain.

Another potential suitor is Cadence Design Systems Inc (NASDAQ: CDNS) with a market capitalisation of $35.2 billion. The company was born out of a merger of SDA Systems and ECAD in 1998. The company publishes popular PCB design software, Allegro PCB Design and OrCAD. 

My take

Given the strength and customer loyalty for Altium Designer (Altium’s flagship PCB software), it’s no surprise a competitor has come knocking with a takeover bid.

The share price has taken a beating recently, so it is an opportunistic time to acquire a market leader at a potential discount. However, Altium remains expensive, trading on a market capitalisation to Free Cash Flow multiple of 50x.

I’d be disappointed to see Altium acquired, given it’s one of the highest quality shares on the Australian market.

For more share ideas, check out 3 ASX growth shares to watch closely in June.

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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