Tessera Buying DTS for $850 Million to Broaden Market Opportunities
Tessera Technologies’ buy of DTS in a cash deal valued at $850 million will create a “world-class company much stronger than the sum of its parts,” said Tessera CEO Tom Lacey Tuesday on an investor call. Before the open of U.S. markets Tuesday the companies announced a definitive agreement under which Tessera will acquire DTS for $42.50 per share, a 28 percent premium to DTS' 30-day volume weighted average price as of Sept. 19. DTS itself bought HD Radio developer iBiquity for about $170 million last year (see 1510070014).
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The acquisition adds “significant scale and diversifies revenue across end markets and customers,” Tessera said. Pro forma 2016 revenue is projected at about $450 million, with roughly half coming from product licensing, it said. The combined company will operate under a new name, still to be decided, and the deal, subject to regulatory approvals, is expected to close in Q4 or January, Lacey said. Lacey will be CEO of the new company, and DTS CEO Jon Kirchner will be president.
Lacey called the DTS acquisition “transformational” to Tessera’s business and a major step along a path he laid out three years ago to turn the company into a “growth-oriented, product, technology and customer-focused business.” The combined entity will be one of the world’s leading product and technology companies “with more than 25 additional tier-one customers,” he said, naming Qualcomm, MediaTek, Texas Instruments, Cirrus Logic, ARM, Nvidia, Sony, Philips, HP, Microsoft, Hyundai, Harman, Onkyo, Polk Audio, Definitive Technologies, Seagate, Western Digital, Bose, Asus, JVC, Panasonic, Vizio, Mitsubishi, Xiaomi, Vevo and Kenwood.
The combined company will have more than 450 engineers focused on imaging, audio and semiconductor packaging technologies, said Lacey. Executives haven't sorted out reporting segments for the new company, but a slide showed “attractive end markets” the entity will target: Augmented/virtual reality, automotive, consumer electronics, IoT and mobile.
Under consumer electronics, the companies listed Tessera’s portfolio offerings as image processing, high dynamic range, DBI bonding manufacturing for image sensors, semiconductor packaging, small machine learning and immersive video. DTS’ portfolio comprised the DTS-HD audio codec, DTS:X audio codec, DTS Headphone:X, DTS Play-Fi wireless audio, HD Radio and DTS Sound post-processing. The combined company has a chance to “invent the future of smart audio and imaging,” said Lacey.
Tessera, through its FotoNation business, is an imaging company that brings customer access to DTS:X headphone technology, said Lacey. DTS’ has a strong position with HD Radio in the automotive market that can help accelerate FotoNation’s penetration into that category, Lacey said. FotoNation has annual shipments of 450 million units, he said.
The combined technologies of the two companies position the new company for the “massive IoT space through the combination of advanced packaging, bonding, interconnect, imaging, object recognition, machine learning and audio processing,” Lacey said.
Kirchner cited the speed at which the technology markets are moving and “the depth of insight required” to deliver solutions in imaging, sound or a combination of the two on silicon. He said the combination of insight, channel access and experience from the two companies "puts us in a position to ultimately drive greater sales synergy.” That starts with a platform footprint in the marketplace, he said.
DTS’ Kirchner said the acquisition is the next chapter in DTS’ growth, saying combined scale, talent, financial resources and IP portfolio “allow us to pursue wider and deeper penetration of audio and imaging technologies” across a wide range of markets.
Responding to a question on machine learning, Lacey said FotoNation has a team working on low-power devices and embedded hardware-software technology. Combining the ability to put technology in silicon with machine learning allows the company to build “smart imaging” devices, Lacey said. Machine learning will help the company build smaller, intelligent, “sensory-perceptive” devices. DTS will bring additional capabilities to machine learning with sound, he said.
In a research note Tuesday, Dougherty’s Steven Frankel said: “DTS has come a long way from its early theatrical roots expanding into Mobile with Headphone:X, wireless audio with Play-Fi and a broader presence in the automobile through the acquisition of iBiquity.” The announcement “gives investors a fair price and removes any execution risk related to the expansion into these new markets,” he said.