German engineering group Siemens has decided to buy U.S. based Mentor Graphics in a $4.5 billion deal that will boost its industrial software operations and enable it to keep in pace with the most recent changes in manufacturing technology.

According to Siemens, it will pay $37.25 per share to the shareholders of Mentor Graphics, which is a 21 per cent premium upon Friday’s closing price, and will fund the deal from its cash reserves. Mentor Graphics in case you are unaware of it, is a US-based multinational corporation that deals in electronic design automation for electrical engineering and electronics.

Siemens took the advice of Deutsche Bank and JP Morgan over the transaction. On the other hand Mentor Graphics was advised by the Bank of America. Meanwhile, the deal is expected to close sometime in the second quarter of 2017.

Siemens Chief Executive Joe Kaeser has big plans with this deal. He also said that the company is planning to reshape the entire Siemens group for higher profits and faster growth by selling off non-core businesses and investing in software.

Siemens finance chief, Ralf Thomas in a press conference said,

Our customers are driving a paradigm shift toward more and more complex and smart connected products such as autonomous vehicles.

This acquisition is our answer to this development. 

He added.

Baader Helvea analyst Guenther Hollfelder, who has a “buy” recommendation on Siemens shares, commented on the deal saying that the acquisition did not appear too expensive at a valuation of 18.5 times operating profit.

In early U.S. trading, while Siemens was 1.1 percent higher by 1435 GMT, Mentor Graphics shares jumped to $36.37, which is a hefty 18.5 per cent hike.

Activist hedge fund Elliott Management Corp in September reported an 8.1 percent stake in Mentor Graphics. According to Elliott the deal is a “great outcome” for Mentor Graphics’ shareholders and customers.

The acquisition, according to Siemens will to add to its earnings per share within three years and will lift earnings before interest and tax (EBIT) by more than 100 million euros ($107.21 million) within four years. The company is also expecting a boost in its software revenue.

According to Thomas, nearly half of the boost in earnings will come from revenue synergies and the other half from lower costs, including from some job cuts.

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