One day after announcing a profit warning and the restructuring of their R&D in their hearing aid division, GN (parent company of ReSound, Beltone, Interton, and Audigy) reports it has signed an agreement to acquire SteelSeries, a global premium software-enabled gaming gear developer, from the Nordic private equity company Axcel for a total purchase price of $1.24 billion (DKK 8.0 billion) in cash. Subject to regulatory approvals, the deal is expected to be finalized by the beginning of 2022.
The acquisition, which has been widely rumored in the Danish business press, is expected to provide GN with a strong position in the attractive upscale gaming gear market and expands its position in the premium audio market in which it already has a prominent place with its Jabra headsets and recently introduced Jabra Panacast cameras. SteelSeries has a reputation as a leader in e-sports headsets, with particular focus on “ultimate gamers” who look for any edge in competition. The billion-dollar purchase also further places GN Audio—which already is responsible for about 65% of the company’s revenues—as the primary business component in the group compared to GN Hearing, its hearing healthcare division. It also likely casts Logitech, HyperX (HP), Razer, Corsair, and Turtle Beach as its primary competitors in addition the GN Hearing division’s other “Big 5” hearing aid competitors Sonova, Demant, WS Audiology (Signia and Widex), and Starkey.
Originally founded in Denmark in 2001, SteelSeries reportedly makes premium gaming gear favored among the world’s e-sports gamers for its superior quality, inventive functionality and Scandinavian design heritage. SteelSeries is particularly known for its premium gaming headsets, keyboards, and mice that are software-enabled and system-integrated, which significantly enhance the user experience and reinforce customer loyalty. The gaming gear market has experienced significant growth over the past few years and is expected to continue to grow in the mid-term at around 7-8% per year. According to GN, SteelSeries has taken significant market share during the past few years based on its strong product offering and acquiring France-based A-Volute and US-based KontrolFreek during 2020, adding additional software engineering capabilities and enhancing its position in the console gear market.
GN anticipates that SteelSeries will be a new growth engine for the group with its own identity, brand, and execution strength while benefitting from the industry leading capabilities and track record of GN Audio to drive continuous growth and value creation. It says the acquisition will bring complementary engineering competencies, commercial capabilities, differentiated brands, a large customer base and an innovative high-growth product offering, adding further technical expertise and IP to GN.
“We have for some time searched for the right way for GN to enter the very interesting gaming market, being keenly interested in the ‘high-end’ segment,” said René Svendsen-Tune, CEO of GN Audio in the press statement. “SteelSeries delivers on this aspiration of ours, and we see a perfect match in terms of technology and commercial capabilities, premium brand positioning, and growth ambitions. SteelSeries brings a highly relevant and competitive portfolio and strong engineering competencies. Combining our forces will benefit both organizations as we enter a future where demand for our portfolios of products will continue to be strong.”
SteelSeries employs about 350 employees, including 80 software engineers, and has offices in Denmark, France, the United States, China, and Taiwan. In 2020, SteelSeries delivered pro forma revenue of $337 million (DKK 2,175 million) and an adjusted EBITA margin of 13.3%. In H1 2021, it delivered revenue of $201 million (DKK 1,296 million) and an adjusted EBITA margin of 14.0%, which is an improvement compared to H1 2020, putting the company comfortably on track to deliver strong growth in revenue and EBITA in 2021 on top of the historical strong performance in 2020, says GN.
Fitting the Two Companies Together
GN points out that the core technology competencies it shares with SteelSeries complement and align very well to drive continuous growth and value creation. SteelSeries has an outstanding track record of innovation combined with robust design capabilities and a strongly recognized premium gaming brand. GN’s technology leadership is within in-ear acoustics, medical grade hearing aids, and connectivity as well as enterprise audio & video collaboration.
“SteelSeries is a premium gaming gear brand with a single-minded focus on helping gamers achieve glory. We are thrilled to become part of GN. The fit is perfect as we both share a relentless drive for creating cutting-edge technology to delight our customers. We see great upside in leveraging each organization’s unique strengths to build an even more formidable, unified company,” said SteelSeries CEO Ehtisham Rabbani in the press statement.
Based on GN’s track-record of integrating acquired assets and a due diligence analysis of SteelSeries, it is anticipated the combination will produce significant scaling opportunities and revenue synergies when combining SteelSeries with GN’s extensive global distribution footprint. Consequently, annual run-rate operational synergies of around $23 million (DKK 150 million) by 2022 are expected, while transaction- and integration-related costs are expected to be around a similar amount in 2021.
Purchase Details and Cessation of Share Buy-Back Program
According to GN, the transaction represents an enterprise value on a cash and debt free basis of $1.24 billion (DKK 8.0 billion). The acquisition will be structured as 100% cash payment financed through our existing cash balance and a bridge-loan, which is expected to be replaced with other debt instruments at a later point in time. As a result of this announcement, GN Store Nord’s current share buyback program, where shares worth $163 million (DKK 1,052 million) have been repurchased since early May 2021 is paused with immediate effect. Following closing of the transaction, GN Store Nord will focus on de-leveraging in order to be within its capital structure policy again within a couple of years. Closing of the transaction is subject to customary regulatory approvals and is anticipated by the beginning of 2022.
Earlier today, GN conducted a conference call outlining the purchase for investors and analysts that can be found at: https://live.axion.dk/gn/211006/qE9ib76.html
Source: GN and Hearing Review
