Turtle Beach Announces Transformational Acquisition of PDP and Intention to Launch Reverse Dutch Tender Auction
- Acquisition of Performance Designed Products (PDP) enhances Turtle Beach's product portfolio and profitability.
- Expected total revenues of $390 to $410 million in the first full year post-acquisition.
- Anticipated cost synergies of $10 to $12 million annually and potential revenue synergies.
- Diversis Capital to become the largest shareholder with approximately 16% ownership.
- 2024 net revenues projected to be $370 to $380 million, driven by the acquisition of PDP.
- Pro forma combined Adjusted EBITDA estimated between $51 million and $54 million for 2024.
- Intention to launch a modified Dutch Auction Tender Offer to repurchase up to $30 million of common stock.
- None.
Insights
The acquisition of Performance Designed Products (PDP) by Turtle Beach is a strategic move that broadens the company's product offerings and is expected to enhance its market position in the gaming accessories sector. The gaming industry is experiencing robust growth and the demand for gaming accessories is rising in tandem. By acquiring a leading provider of gaming controllers, Turtle Beach not only diversifies its portfolio but also taps into the complementary product lines that could lead to cross-selling opportunities.
Furthermore, the expected financial synergies, such as cost reductions and revenue enhancements, are significant. The anticipated $10 to $12 million in annual run-rate cost synergies could improve the combined company's margin profile. Moreover, the acquisition's accretive nature suggests that it will be beneficial to shareholders from a financial metrics standpoint, particularly in terms of earnings per share and return on investment.
However, while the acquisition is projected to be immediately accretive, it is also important to monitor the integration process closely. Mergers and acquisitions can sometimes lead to unforeseen challenges, including cultural integration, systems harmonization and customer retention. The success of the acquisition will largely depend on how effectively Turtle Beach can integrate PDP's operations and realize the projected synergies.
The financial implications of Turtle Beach's acquisition of PDP and the subsequent modified Dutch Tender Offer are multifaceted. The enterprise value of $118 million for PDP and the transaction multiple of 4.7x post-synergy Adjusted EBITDA are particularly noteworthy. Compared to industry norms, this multiple is relatively attractive, suggesting that Turtle Beach may have negotiated favorable terms. This could be indicative of a strategic move to consolidate market share without overpaying, which is often a concern in such deals.
The Tender Offer, priced at a premium to the current share price, reflects management's confidence in the company's intrinsic value and future prospects. It also represents a return of capital to shareholders, which could be seen as a positive signal regarding the company's liquidity and financial health. The financing of the Tender Offer through cash on hand and borrowing capacity indicates a balanced approach to capital allocation, preserving financial flexibility for future growth initiatives.
Investors should consider the impact of these initiatives on the company's leverage, particularly the pro forma prospective net debt of 0.7x. While this level of leverage appears manageable, it is essential to evaluate the company's ability to service its debt, especially in the context of the gaming industry's cyclicality and the potential for market fluctuations.
The legal aspects of the acquisition, such as the unanimous approval by the Boards of Directors of both Turtle Beach and PDP, indicate a clear consensus on the strategic fit and potential value creation of the transaction. The involvement of reputable legal advisors and financial institutions in structuring the deal underscores its significance and the due diligence conducted.
Additionally, the immediate closure of the transaction upon execution of the definitive agreements suggests that there were no regulatory hurdles or antitrust concerns that could delay the merger. This is often an area of concern in such deals and the absence of such issues could mean a smoother integration process.
It is also worth noting the governance changes, with Diversis Capital becoming the largest shareholder and adding a Senior Operating Partner to the Turtle Beach Board. This could lead to shifts in strategic direction and should be monitored for potential impacts on company policy and stakeholder interests.
Highly Accretive Acquisition of Performance Designed Products Expands Product Portfolio, Strengthens Profitability and Meaningfully Enhances Size of Company
Establishes a Powerhouse in Hardware Gaming Accessories with Leadership Positions in Console Headsets and Controllers, Amplified by Significant Financial Synergies
Announces Intent to Launch a Modified Dutch Tender Offer to Repurchase up to
Pro Forma Prospective Net Debt of 0.7X at Transaction Closing Leaves Meaningful Financial Cushion to Fund Additional Growth Initiatives and Capital Return Alternatives
Announces the Appointment of Cris Keirn as Chief Executive Officer
Turtle Beach Board of Directors Increases to 9 Members to Include Cris Keirn and David Muscatel, Operating Partner at Diversis Capital
Provides 2024 Financial Outlook and Summary for Combined Company
Strategic Acquisition of Performance Designed Products (“PDP”)
Turtle Beach today announced the execution of definitive agreements to acquire PDP, a leading gaming accessories provider at an enterprise value for PDP of
-
The combined company anticipates total revenues of
$390 -
The post-synergy Adjusted EBITDA of PDP is projected to be
$22 $28 million -
Turtle Beach expects
$10 $12 million - Acquiring PDP at an attractive valuation multiple relative to the trading multiples of peers implies potential significant upside in market value for the combined company.
-
Diversis Capital, a
Los Angeles -based private equity firm and PDP’s majority owner, will become the largest shareholder of Turtle Beach with approximately16% of the pro forma basic shares outstanding prior to the expected modified Dutch Tender Offer and will add one of its Senior Operating Partners, David Muscatel, to the Turtle Beach Board.
Consideration for the Transaction consists of the issuance of 3.45 million shares of Turtle Beach's common stock and approximately
The Board of Directors of both Turtle Beach and PDP have unanimously approved the Transaction and the Transaction was closed immediately upon the execution of the definitive agreements.
Jefferies LLC acted as exclusive financial advisor and Dechert LLP acted as legal counsel to Turtle Beach and O’Melveny & Myers LLP acted as legal counsel to PDP in connection with the transaction.
2024 Summary Financial Outlook
Turtle Beach is pleased with its share gains experienced during the holiday season, its ongoing cost improvement initiatives, and its 2024 product portfolio, all of which continue to highlight the meaningful, recent positive momentum on both the top and bottom-line for the Company.
The acquisition of PDP adds significant financial benefits to Turtle Beach that, in conjunction with synergies realized, fundamentally transforms the financial profile of the Company.
Accordingly, the Company expects 2024 net revenues to be in the range of
In the first full four quarters of operation (Q2 2024 through Q1 2025), the combined Company expects total net sales to be in the range of
Intends to Launch a Modified Dutch Auction Tender Offer within One (1) Month
To drive further value for Turtle Beach shareholders, the Company announced today that it intends to launch a modified “Dutch Auction” Tender Offer (the “Tender Offer”) to purchase up to
A modified "Dutch Auction" Tender Offer allows shareholders to indicate how many shares of Common Stock and at what price within the range described above they wish to tender their shares. Based on the number of shares tendered and the prices specified by the tendering shareholders, the Company will determine the lowest per-share price that will enable it to acquire up to
The Company’s Board believes the modified “Dutch Auction” Tender Offer structure is a mechanism that affords shareholders with an opportunity to obtain liquidity with respect to all or a portion of their shares, with less potential disruption to the share price and the usual transaction costs inherent in open market purchases and sales.
Executive Management and the Board of Directors of Turtle Beach do not plan on participating in the tender offer.
Announcement of Chief Executive Officer
The Company announced that Turtle Beach’s Board of Directors has appointed Cris Keirn as Chief Executive Officer and to the Board of Directors, effective immediately. The appointment concludes a comprehensive CEO search process, launched by the Board in the second quarter of 2023, with the mandate to appoint a highly qualified leader with extensive product innovation, operational and transformational experience, and capable of delivering strong financial and operational results to drive future growth across the business.
Mr. Keirn joined Turtle Beach in 2013 and has been a key contributor in the transformation of Turtle Beach’s product portfolios, including in his role as Vice-President of Business Planning and Strategy prior to his executive role in sales. Mr. Keirn has also led sales operations, customer care and market analytics teams for the Company. Prior to joining Turtle Beach, Cris held leadership positions over a 17-year span in multiple divisions at Motorola across engineering, product management, operations, quality and customer relations.
“I’m honored to work with the amazing team at Turtle Beach, now including our new colleagues from PDP, as we continue to deliver fantastic new products for gamers and value to our shareholders,” said Keirn. “Working with our industry partners, and with the combined expertise of our teams, we will drive a transformational change to the company’s scale and execution with innovation and expansion of our leadership positions across gaming accessory categories.”
“After a comprehensive review of strategic actions and significant engagement by the Board of Directors, I am excited about the announcements made today that we believe will create substantial value for Turtle Beach shareholders,” said Terry Jimenez, Chairman of the Board of Directors and Chairman of the Value Enhancement Committee. “Acquiring PDP, announcing a modified Dutch auction tender offer, and appointing Cris Keirn as our next CEO are significant outcomes that are a result of a thorough review of our business opportunities ahead. We are pleased to welcome the PDP team to Turtle Beach, and we look forward to benefiting from our improved financial profile, gaming product portfolio and industry-leading team. In addition, we are pleased to welcome both Cris and Dave to our Board, both of whom are excellent additions. We’re also excited to have Cris leading the business as CEO and believe his industry expertise and leadership skills are critical to advancing our strategy to drive growth across our gaming accessories businesses and generate substantial profit. Ultimately, each of these outcomes better position the Company for future success and value creation for shareholders.”
Conference Call Details
Turtle Beach will host a conference call today, March 13, 2024, at 5:00 p.m. ET / 2:00 p.m. PT to review the transaction, detail its fourth quarter and full year 2023 earnings results and host a question-and-answer session. A live webcast of the call will be available on the “Events & Presentations” page of the Company’s website at www.turtlebeachcorp.com. To access the call by phone, please go to this link (registration link) and you will be provided with dial-in details. To avoid delays, we encourage participants to dial into the conference call 15 minutes ahead of the scheduled start time. A replay of the webcast will also be available for a limited time at www.turtlebeachcorp.com.
Non-GAAP Financial Measures
In addition to its reported results, the Company has included in this release certain financial metrics, including adjusted EBITDA, that the Securities and Exchange Commission define as “non-GAAP financial measures.” Management believes that such non-GAAP financial measures, when read in conjunction with the Company's reported results, can provide useful supplemental information for investors analyzing period-to-period comparisons of the Company's results. Non-GAAP financial measures are not an alternative to the Company’s GAAP financial results and may not be calculated in the same manner as similar measures presented by other companies. “Adjusted EBITDA” is defined by the Company as net income (loss) before interest, taxes, depreciation and amortization, stock-based compensation (non-cash), and certain non-recurring special items that we believe are not representative of core operations, as further described in Table 4 of our Full Year 2023 Earnings Release. These non-GAAP financial measures are presented because management uses non-GAAP financial measures to evaluate the Company’s operating performance, to perform financial planning, and to determine incentive compensation. Therefore, the Company believes that the presentation of non-GAAP financial measures provides useful supplementary information to, and facilitates additional analysis by, investors. The non-GAAP financial measures included herein exclude items that management does not believe reflect the Company’s core operating performance because such items are inherently unusual, non-operating, unpredictable, non-recurring, or non-cash. See a reconciliation of GAAP results to Adjusted EBITDA included as Table 4 in our Full Year 2023 Earnings Release for each of the three and twelve months ended December 31, 2022 and December 31, 2023.
About Turtle Beach Corporation
Turtle Beach Corporation (the “Company”) (www.turtlebeachcorp.com) is one of the world’s leading gaming accessory providers. The Company’s namesake Turtle Beach brand (www.turtlebeach.com) is known for designing best-selling gaming headsets, PC gaming products, top-rated game controllers, and groundbreaking gaming simulation accessories. Innovation, first-to-market features, a broad range of products for all types of gamers, and top-rated customer support have made Turtle Beach a fan-favorite brand and the market leader in console gaming audio for over a decade. Turtle Beach’s shares are traded on the Nasdaq Exchange under the symbol: HEAR.
Cautionary Note on Forward-Looking Statements
This press release includes forward-looking information and statements within the meaning of the federal securities laws. Except for historical information contained in this release, statements in this release may constitute forward-looking statements regarding assumptions, projections, expectations, targets, intentions or beliefs about future events. Statements containing the words “may,” “could,” “would,” “should,” “believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,” “goal,” “project,” “intend” and similar expressions, or the negatives thereof, constitute forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. The inclusion of such information should not be regarded as a representation by the Company, or any person, that the objectives of the Company will be achieved. Forward-looking statements are based on management’s current beliefs and expectations, as well as assumptions made by, and information currently available to, management.
While the Company believes that its expectations are based upon reasonable assumptions, there can be no assurances that its goals and strategy will be realized. Numerous factors, including risks and uncertainties, may affect actual results and may cause results to differ materially from those expressed in forward-looking statements made by the Company or on its behalf. Some of these factors include, but are not limited to, risks related to inflationary pressures, optimizing our product portfolio, reducing our cost of goods and operating expenses, reductions in logistic and supply chain challenges and costs, the substantial uncertainties inherent in the acceptance of existing and future products, the difficulty of commercializing and protecting new technology, the impact of competitive products and pricing, including promotional credits and discounts, general business and economic conditions, risks associated with the future direction or governance of the Company, risks associated with the expansion of our business, including the integration of any businesses we acquire and the integration of such businesses within our internal control over financial reporting and operations, our indebtedness, liquidity, and other factors discussed in our public filings, including the risk factors included in the Company’s most recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, and the Company’s other periodic reports filed with the Securities and Exchange Commission. Except as required by applicable law, including the securities laws of
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MacLean Marshall
Sr. Director, Public Relations &
Brand Communications
Turtle Beach Corporation
858.914.5093
maclean.marshall@turtlebeach.com
Investor Information:
Alex Thompson
Gateway Group
949.574.3860
hear@gateway-grp.com
Source: Turtle Beach Corporation
FAQ
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