Application Security , Next-Generation Technologies & Secure Development

Synopsys Greenlights Sale of $525M Application Security Unit

Software Integrity Business Could Fetch More Than $3B, Attract Private Equity Firms
Synopsys Greenlights Sale of $525M Application Security Unit

Synopsys' board of directors signed off Wednesday on selling the company's $525 million application security testing business to focus exclusively on design automation and IP.

See Also: ESG Research Report: Securing the API Attack Surface

The Silicon Valley-based systems design behemoth in November began exploring strategic alternatives for its software integrity group, weeks before agreeing to buy software developer Ansys for about $34 billion. Bloomberg reported last month that Synopsys is working with an adviser to gauge interest in its application security division, which could attract private equity firms and be valued at $3 billion or more.

Private equity ownership is fairly common among competitors of Synopsys' application security division. TA Associates in May 2022 took majority ownership of Veracode from Thoma Bravo at a $2.5 billion valuation, and Hellman & Friedman in April 2020 bought a majority stake in Checkmarx from Insight Partners at a $1.15 billion valuation. Synopsys declined to comment on last month's Bloomberg report.

"We are proud of the significant process we've made [in software integrity] over the last nine years and believe the future opportunity remains attractive," Synopsys President and CEO Sassine Ghazi told investors in November. "At the same time, we have compelling investment opportunities in design automation and design IT with much higher expected growth and return profiles."

Slowed Growth But Increased Profits

The growth rate for Synopsys' software integrity business slowed from 18% in the company's 2022 fiscal year to 13% in its 2023 fiscal year and then to just 8% in its most recent fiscal quarter, which ended Jan. 31. Software integrity has gone from accounting for 9.4% of Synopsys' overall revenue in fiscal 2021 to 9.2% in fiscal 2022 to 9% in fiscal 2023 and then to just 8.4% in the company's most recent fiscal quarter.

"We believe there's a higher return on investment in the 90% of our portfolio spread between the design automation and design IP business segments," Ghazi told investors in November.

Although growth has slowed for Synopsys' application security testing business, the division is becoming increasingly profitable. The group's operating income jumped by 23% in Synopsys' 2022 fiscal year, by 62% in the company's 2023 fiscal year and by 55% in the company's most recent fiscal quarter. Synopsys' operating margin improved from 10% in fiscal 2022 to 15% in fiscal 2023 to 17% last quarter.

Synopsys built its application security testing business through a string of acquisitions over several years. The publicly traded company kicked things off in March 2014 by buying software testing vendor Coverity for $334 million. Then it scooped up software security vendor Codenomicon for an undisclosed amount in August 2015.

"Synopsys has articulated a really good vision of where they want to go."
– Mark Horvath, vice president analyst, Gartner

The company made a big splash in December 2017 by acquiring open-source security vendor Black Duck Software for $547 million and followed that up in June 2021 by acquiring application security risk management firm Code Dx for an undisclosed amount. Finally in June 2022, Synopsys bought WhiteHat Security for $330 million to protect web applications in production environments in an automated, scalable fashion (see: Synopsys to Buy WhiteHat Security for $330M to Protect Apps).

Praised by Analysts, Questioned by Competitors

The security testing platform Synopsys created through these acquisitions received widespread praise from technology analysts. Synopsys stood head and shoulders above its competitors in Gartner's 2023 application security testing rankings, and the analyst firm praised the company for adding an integrated SaaS solution, expanding its support for developer tools and improving data analysis and orchestration (see: Synopsys Extends Lead in Gartner MQ for App Security Testing).

"Synopsys has articulated a really good vision of where they want to go, and they've made some purchases," Mark Horvath, vice president and analyst at Gartner, told Information Security Media Group in May 2023. "The product does keep getting better. And when presented with a technical challenge, Synopsys is actually pretty good about changing course to solve the problem."

Forrester, meanwhile, last year placed Synopsys behind only Veracode for static application security testing and behind Sonatype and Snyk for software composition analysis. The analyst firm praised Synopsys for having a powerful policy engine, offering multiple ways to purchase functionality, offering robust scan and source code analysis, and delivering the most actionable results to developers (see: Veracode, Synopsys, Checkmarx Dominate SAST Forrester Wave).

Synopsys' conduct following the Black Duck acquisition irked competitor Risk Based Security, which was bought by Flashpoint in January 2022. Synopsys became a CVE-numbering authority in March 2021, which prompted Risk Based Security to send Synopsys a cease-and-desist letter since the move allegedly involved database information Black Duck had obtained unlawfully.

Synopsys in April 2021 asked the courts to rule it hadn't stolen Risk Based Security's trade secrets. A federal appeals court ruled in Synopsys' favor in June 2023 after determining Risk Based Security failed to prove it derived "independent economic value" from the data Synopsys had used to create its own database of open-source code vulnerabilities (see: Appeals Court Upholds Synopsys Victory in Trade Secrets Suit).

"RBS failed to put forward admissible evidence showing that the 75 alleged trade secrets had independent economic value," U.S. Circuit Judge G. Steven Agee wrote last year.

About the Author

Michael Novinson

Michael Novinson

Managing Editor, Business, ISMG

Novinson is responsible for covering the vendor and technology landscape. Prior to joining ISMG, he spent four and a half years covering all the major cybersecurity vendors at CRN, with a focus on their programs and offerings for IT service providers. He was recognized for his breaking news coverage of the August 2019 coordinated ransomware attack against local governments in Texas as well as for his continued reporting around the SolarWinds hack in late 2020 and early 2021.

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