Siemens said on Monday it would pay $37.25 per share for Mentor - which makes software for designing semiconductors - a 21 percent premium to Friday's closing share price.
Siemens has increasingly had to compete with software companies who can develop technology faster because they have a sole focus and has identified software as a growth area in its part of its "Vision 2020" strategy.
Siemens expects the acquisition of Mentor to add to its earnings within three years and result in savings that will lift earnings before interest and tax (EBIT) by more than 100 million euros ($108 million) within four years.
People familiar with the matter had flagged the planned deal to Reuters, saying Siemens would pay $4.5 billion to $4.6 billion for Mentor.
Deutsche Bank and JP Morgan advised Siemens on the transaction.