The Munich, Germany-based Siemens AG (ETR:SIE) is buying Mentor Graphics, the American firm that designs for electrical engineering and electronics. The deal is expected to be worth $4.5 billion. With this all-cash deal, Siemens will be able to further build their software capabilities.

This will be the biggest takeover by Siemens since 2014. It is also their biggest acquisition since Siemens decided to buy Dresser-Rand Group for $7.6 billion.

According to the deal, Siemens has agreed to make a payment of $37.25 for each share of the American firm. This is a 21 percent premium over the Friday closing price of the Mentor (NASDAQ:MENT) stock. The business based out of Wilsonville in the state of Oregon builds software to design designing semiconductors.

Mentor has not been doing well in recent times. A $10 million loss was reported in the six months ending July 31. The business has been under pressure to increase value for their shareholders.

Siemens to Earn More After Taking Over Mentor Graphics

Elliott Management Corp. has an 8.1 percent ownership of Mentor. They have backed this offer. Earlier, JP Morgan and Deutsche Bank had advised Siemens to go ahead with the transaction. With the takeover of Mentor, the earning of Siemens is expected to go up considerably in three years. There are going to be considerable savings as well, which will increase the earnings before tax and interest by $108 million in four years. The per share earnings is also likely to go up in three years.

Klaus Helmrich, who is a board member of Siemens, said, “The acquisition will allow us to supplement our world-class industrial software portfolio. It will complement our strong offering in mechanics and software with design, test, and simulation of electrical and electronic systems”.

Business observers agree that this agreement will surely help the engineering giant from Germany to extend their industrial software capability.

The stock market reacted positively to this news. The Siemens stock was trading 1.79 percent higher, as there was considerable demand for it.

Siemens AG Pushing Into Software Development

In recent times, Siemens have faced increased competition from software companies. The business had some time back identified software as a key growth area for their “Vision 2020” plan. Under Josef Kaeser, the CEO, the business has been pushing deeper into developing software applications for running industrial equipment. The Mentor Graphics purchase is going to help the business achieve their plans.

In January, Siemens (ETR:SIE) purchased the American firm CD-adapco for $970 million to grow their digital business and focus more on industrial applications instead of consumer products.