Why Gaming Audio & Accessory Firm Turtle Beach Shares Are Rocketing Premarket Thursday

Turtle Beach Corporation HEAR shares are surging premarket after the company disclosed Performance Designed Products (PDP) acquisition and said it plans to launch a reverse Dutch tender auction.

Acquisition: The company disclosed the execution of definitive deals to acquire PDP, a gaming accessories provider, at an enterprise value of $118 million. 

The deal consideration comprises the issuance of 3.45 million shares of Turtle Beach and cash of about $79.9 million. 

Turtle Beach expects combined company revenues of $390 million to $410 million in the first 12 months of ownership (second-quarter 2024 through first-quarter 2025).

The company expects post-synergy adjusted EBITDA of PDP of $22 million to $28 million in the first full 12 months of ownership, implying a post-synergy transaction multiple of 4.7x at the mid-point of estimated 2024 Adjusted EBITDA.

Also, Turtle Beach sees anticipated annual run-rate cost synergies of $10 million to $12 million.

Fourth-quarter results: The company also announced fourth-quarter FY23 results yesterday, with net revenue of $99.5 million (-1.3% Y/Y), and missed the consensus of $111.60 million. 

Adjusted EBITDA improved to $14.0 million from $1.0 million in the prior year’s quarter. EPS of $0.47 missed the street view of $0.60. 

For 2024, the company expects net revenues of $370 million to $380 million (vs. estimate of $295.09 million), with the growth driven primarily by the acquisition of PDP and the expected out-performance of the gaming markets in specific categories based on the product plans. 

Also, Turtle Beach projects pro forma combined adjusted EBITDA of $51 million-$54 million, incorporating about nine months of operations from PDP.

The company reiterates its long-term goals of a 10%+ revenue CAGR, a mid-30’s gross margin percentage, and now expects a low to mid-teens percentage for Adjusted EBITDA margins.

Dutch Auction offer: The company disclosed that it intends to launch a modified “Dutch Auction” tender offer to purchase up to $30 million in value of its common shares at a price per share not less than $13.75 per share and not greater than $15.00 per share, less any applicable withholding taxes and without interest.

As of March 12, 2024, the closing price of the share was $11.03, setting the low-end of the offer range at a 25% premium to the most recent closing share price. 

The offer is anticipated to commence on or about April 10, 2024, and is expected to expire at midnight, New York City time, at the end of the day on or about May 10, 2024, unless extended or terminated.

Price Action: HEAR shares are up 28% at $14.12 premarket on the last check Thursday.