Tessera Technologies To Acquire DTS for $850 Million

Technology licensing firm Tessera Technologies has agreed to acquire audio-solution provider DTS in a deal valued at approximately $850 million. Closing of the transaction is expected by late fourth quarter of 2016 or early first quarter of 2017. At the closing of the transaction, Tessera CEO Tom Lacey will continue to serve as CEO, while and Chairman and CEO of DTS Jon Kirchner is expected to become President of the combined company.

Upon completion of the acquisition, the combined company will be one of the world’s largest product and technology licensing companies, with over 450 engineers focused on developing next-generation imaging, audio and semiconductor packaging technologies. In addition, the acquisition adds significant scale and diversifies revenue across end markets and customers. The combined company is forecasted to achieve pro forma 2016 revenue of approximately $450 million, nearly half of which will come from product licensing.

The transaction will be immediately accretive to Tessera’s earnings per share and free cash flow. The combined company is expected to realize $15 million in annualized cost synergies within the first 12-18 months following the closing of the transaction and anticipates revenue synergies from the expansion of addressable markets and leveraging of complementary customer channels and technologies. Tessera intends to fund the acquisition with a combination of available cash on hand and approximately $600 million of committed debt financing from RBC Capital Markets. The combined company will maintain a strong balance sheet with pro forma cash and investments of approximately $100 million. The combined company is expected to generate significant free cash flow that will provide flexibility to retire debt, fund quarterly dividends, explore M&A opportunities, and continue investments into its business units. In order to better reflect the combined company’s capabilities and technologies, a new corporate name and stock symbol will be adopted in connection with the closing of the transaction.

“Our acquisition of DTS’s talented team and industry-leading products will represent a transformational step in the execution of Tessera’s strategic vision, with exciting new product development and marketing opportunities. We expect this acquisition to be immediately accretive to Tessera’s earnings and accelerate growth. Our complementary technology portfolios are ideally suited to deliver the next generation of audio and imaging solutions to mobile, consumer electronics, and automotive markets while expanding our ability to address incredible new opportunities in IoT and AR/VR,” said Lacey. “I am particularly excited that Jon Kirchner and the exceptional DTS team will join the Tessera family as we continue to grow and expand the DTS brand.”

“This is an exciting transaction that provides substantial and immediate value to our shareholders. We look forward to working closely with Tom and the Tessera team to achieve a smooth integration and pursuing the attractive opportunities ahead,” said Kirchner. “We believe that as part of Tessera we will be in a unique position to deliver the world’s leading audio and imaging solutions to all of our key markets and drive meaningful value for our combined customers, partners and employees.”

A Look at the New Combined Portfolio
DTS’s audio solutions include, among others, DTS-HD and DTS:X audio codecs, DTS Headphone:X and DTS Sound pre-and post processing solutions , DTS Play-Fi wireless audio, and HD Radio.

Tessera’s FotoNation, Invensas and intellectual property businesses have developed and licensed technologies that ship globally in billions of devices.

The combined entitity will have a major technology presence in the consumer electronics, mobile, automotive and semiconductor markets. The combined R&D team will be made up of over 450 imaging, audio, and semiconductor packaging engineers. The two companies’ sales channels will provide immediate mobile and automotive customer cross-selling opportunities.

Terms of the Deal 
Under the terms of the definitive agreement, Tessera will acquire DTS in an all cash transaction valued at approximately $850 million. Tessera will acquire DTS for $42.50 per share, representing a 28% premium to DTS’s 30-day volume weighted average price as of September 19, 2016. DTS equity awards will be assumed or exchanged for cash upon closing of the transaction, in accordance with the terms of the definitive agreement. DTS stockholders will become entitled to receive $42.50 per share in cash at the time of the closing. Additionally, all of DTS’s outstanding debt will be retired at the closing of the transaction.