Resideo's $1.4B Purchase Of Snap One Is A 'Strong Strategic Fit': JPMorgan Sees 35% Upside

Resideo Technologies Inc‘s REZI recent acquisition of Snap One Holdings Corp SNPO has sparked investor interest. On Monday, Snap One announced it will be acquired by Resideo Technologies for $1.4 billion in cash.

We covered the news first here: Why Is Snap One Stock Jumping Premarket Monday?

Analyst Cory A. Carpenter from JPMorgan provided valuable insights on the acquisition, calling it a “strong strategic fit at reasonable value.”

Let’s delve into the implications for both Resideo and Snap One investors:

Resideo Stock – 35% Upside In Sight

• Strategic Fit: Carpenter sees a strong strategic fit between Resideo’s ADI distribution business and Snap One. Both companies target the smart living market, with Resideo focusing on commercial security ,and Snap One primarily serving the home technology vertical.
• Financial Perspective: The acquisition price of $10.75 per share for Snap One aligns with Carpenter's earlier fair value estimate of $11. This price is deemed reasonable, equating to about 10 times the projected 2024 adjusted EBITDA before merger synergies and 7.5 times including synergies.
• Revenue Expectations: Resideo’s preliminary Q1 results indicate revenue at the midpoint of its prior outlook, suggesting continued improvement in profit and loss.
• Long-term Outlook: Carpenter maintains an Overweight rating on Resideo stock, with a price target of $27. This represents a 35% upside from current price levels. Carpenter anticipates enhanced revenue and gross margin profiles over time, driven by synergies from the Snap One acquisition.

Snap One – Uniquely Strategic To Resideo’s Business

• Complementary Verticals: Carpenter highlights the complementary nature of Snap One and Resideo’s vertical footprints. He emphasized potential for higher service professional wallet share and retention.
• Distribution Expansion: Snap One’s acquisition by Resideo is expected to significantly expand the distribution of its products. Snap One can leverage Resideo’s physical footprint.
• Financial Benefits: Snap One’s higher gross margin and adj. EBITDA margin, along with Resideo’s identified $75 million annual run-rate synergies, are anticipated to enhance profitability and drive long-term growth.
• Regulatory and Financial: Carpenter doesn’t anticipate any regulatory hurdles or competing bids for Snap One. The merger agreement and financial terms provide stability and confidence in the deal’s completion.

Resideo’s acquisition of Snap One presents a compelling strategic opportunity for both companies. Carpenter’s insights shed light on the potential benefits for investors in the evolving landscape of smart living technology.

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