Analyst Note| Abhinav Davuluri, CFA |
On Aug. 30, no-moat Synaptics announced that it was acquiring DSP Group for $22 per share, which suggests a deal price of about $530 million, in an all-cash transaction that is expected to close by the end of calendar 2021. The purchase price represents an 18% premium to the closing price of DSP’s stock on Aug. 26, which we think is reasonable. DSP Group, a leading provider of voice and wireless chipsets for smart-enabled devices, is positioned at the intersection of “Internet of Things” applications and converged communications, resulting in a market-leading “Internet of Audio Things” position. Despite the expected $30 million annual run-rate synergies for the new entity, our model already considers a significant growth runway in IoT alongside a continuing mix shift toward the IoT business segment. As a result, we are maintaining our fair value estimate of $145 per share. With shares trading around $187, we recommend waiting for a pullback before investing.