Thursday, March 14th 2024
Turtle Beach Announces Transformational Acquisition of PDP
Turtle Beach Corporation, a leading gaming accessories brand, announced today that following the Company's establishment of a Value Enhancement Committee in 2023, the Board of Directors (the "Board") has approved comprehensive and value-creative changes to its business, capital allocation and senior leadership. In consultation with its financial and legal advisors over the past year, the Company considered a comprehensive range of strategic, operational and financial alternatives on behalf of shareholders, including a full sale of the Company, and following the completion of its review, announced the following updates.
Turtle Beach today announced the execution of definitive agreements to acquire PDP, a leading gaming accessories provider at an enterprise value for PDP of $118 million (the "Transaction"). PDP is a privately held third-party gaming accessories leader that designs and distributes aftermarket video game accessories, including controllers, headsets, power cases, and other accessories. The Transaction combines two leading gaming companies with industry-leading teams, significant product momentum and proven track records of delivering profitable growth. The Transaction substantially grows the size of Turtle Beach. Bringing PDP's leading gaming controller category to Turtle Beach will provide additional scale and create future development opportunities.
Furthermore, the Company provided the following strategic rationale:
The Board of Directors of both Turtle Beach and PDP have unanimously approved the Transaction and the Transaction was closed immediately upon the execution of the definitive agreements.
Jefferies LLC acted as exclusive financial advisor and Dechert LLP acted as legal counsel to Turtle Beach and O'Melveny & Myers LLP acted as legal counsel to PDP in connection with the transaction.
2024 Summary Financial Outlook
Turtle Beach is pleased with its share gains experienced during the holiday season, its ongoing cost improvement initiatives, and its 2024 product portfolio, all of which continue to highlight the meaningful, recent positive momentum on both the top and bottom-line for the Company.
The acquisition of PDP adds significant financial benefits to Turtle Beach that, in conjunction with synergies realized, fundamentally transforms the financial profile of the Company.
Accordingly, the Company expects 2024 net revenues to be in the range of $370 million to $380 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 Company's product plans for 2024. Additionally, in light of the Company's strong execution on its efficiency and profitability initiatives, the Company expects pro forma combined Adjusted EBITDA to be between $51 million and $54 million, which incorporates approximately 9 months of operations from PDP.
In the first full four quarters of operation (Q2 2024 through Q1 2025), the combined Company expects total net sales to be in the range of $390 - $410 million and Adjusted EBITDA to be in the range of $60 - $65 million.
Intends to Launch a Modified Dutch Auction Tender Offer within One (1) Month
To drive further value for Turtle Beach shareholders, the Company announced today that it intends to launch a modified "Dutch Auction" Tender Offer (the "Tender Offer") to purchase up to $30 million in value of its common stock (the "Common Stock") 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, using available cash on hand and available borrowing capacity. On March 12, 2024, the closing price of the Common Stock was $11.03 per share, setting the low-end of the Tender Offer range at a 25% premium to the most recent closing share price. The Tender Offer is anticipated to commence on or about April 10, 2024 and is expected to expire at 12 midnight, New York City time, at the end of the day on or about May 10, 2024, unless extended or terminated.
A modified "Dutch Auction" Tender Offer allows shareholders to indicate how many shares of Common Stock and at what price within the range described above they wish to tender their shares. Based on the number of shares tendered and the prices specified by the tendering shareholders, the Company will determine the lowest per-share price that will enable it to acquire up to $30 million in value of Common Stock.
The Company's Board believes the modified "Dutch Auction" Tender Offer structure is a mechanism that affords shareholders with an opportunity to obtain liquidity with respect to all or a portion of their shares, with less potential disruption to the share price and the usual transaction costs inherent in open market purchases and sales.
Executive Management and the Board of Directors of Turtle Beach do not plan on participating in the tender offer.
Announcement of Chief Executive Officer
The Company announced that Turtle Beach's Board of Directors has appointed Cris Keirn as Chief Executive Officer and to the Board of Directors, effective immediately. The appointment concludes a comprehensive CEO search process, launched by the Board in the second quarter of 2023, with the mandate to appoint a highly qualified leader with extensive product innovation, operational and transformational experience, and capable of delivering strong financial and operational results to drive future growth across the business.
Mr. Keirn joined Turtle Beach in 2013 and has been a key contributor in the transformation of Turtle Beach's product portfolios, including in his role as Vice-President of Business Planning and Strategy prior to his executive role in sales. Mr. Keirn has also led sales operations, customer care and market analytics teams for the Company. Prior to joining Turtle Beach, Cris held leadership positions over a 17-year span in multiple divisions at Motorola across engineering, product management, operations, quality and customer relations.
"I'm honored to work with the amazing team at Turtle Beach, now including our new colleagues from PDP, as we continue to deliver fantastic new products for gamers and value to our shareholders," said Keirn. "Working with our industry partners, and with the combined expertise of our teams, we will drive a transformational change to the company's scale and execution with innovation and expansion of our leadership positions across gaming accessory categories."
"After a comprehensive review of strategic actions and significant engagement by the Board of Directors, I am excited about the announcements made today that we believe will create substantial value for Turtle Beach shareholders," said Terry Jimenez, Chairman of the Board of Directors and Chairman of the Value Enhancement Committee. "Acquiring PDP, announcing a modified Dutch auction tender offer, and appointing Cris Keirn as our next CEO are significant outcomes that are a result of a thorough review of our business opportunities ahead. We are pleased to welcome the PDP team to Turtle Beach, and we look forward to benefiting from our improved financial profile, gaming product portfolio and industry-leading team. In addition, we are pleased to welcome both Cris and Dave to our Board, both of whom are excellent additions. We're also excited to have Cris leading the business as CEO and believe his industry expertise and leadership skills are critical to advancing our strategy to drive growth across our gaming accessories businesses and generate substantial profit. Ultimately, each of these outcomes better position the Company for future success and value creation for shareholders."
Turtle Beach today announced the execution of definitive agreements to acquire PDP, a leading gaming accessories provider at an enterprise value for PDP of $118 million (the "Transaction"). PDP is a privately held third-party gaming accessories leader that designs and distributes aftermarket video game accessories, including controllers, headsets, power cases, and other accessories. The Transaction combines two leading gaming companies with industry-leading teams, significant product momentum and proven track records of delivering profitable growth. The Transaction substantially grows the size of Turtle Beach. Bringing PDP's leading gaming controller category to Turtle Beach will provide additional scale and create future development opportunities.
- The combined company anticipates total revenues of $390 to 410 million in the first full 12 months of ownership (Q2 2024 through Q1 2025).
- The post-synergy Adjusted EBITDA of PDP is projected to be $22 to $28 million in the first full 12 months of ownership (Q2 2024 through Q1 2025) implying a post-synergy transaction multiple of 4.7x at the mid-point of estimated 2024 Adjusted EBITDA.
- Turtle Beach expects $10 to $12 million of anticipated annual run-rate cost synergies for the transaction, with upside for incremental revenue synergies, best practice sharing and further cost synergies over time.
- Acquiring PDP at an attractive valuation multiple relative to the trading multiples of peers implies potential significant upside in market value for the combined company.
- Diversis Capital, a Los Angeles-based private equity firm and PDP's majority owner, will become the largest shareholder of Turtle Beach with approximately 16% of the pro forma basic shares outstanding prior to the expected modified Dutch Tender Offer and will add one of its Senior Operating Partners, David Muscatel, to the Turtle Beach Board.
The Board of Directors of both Turtle Beach and PDP have unanimously approved the Transaction and the Transaction was closed immediately upon the execution of the definitive agreements.
Jefferies LLC acted as exclusive financial advisor and Dechert LLP acted as legal counsel to Turtle Beach and O'Melveny & Myers LLP acted as legal counsel to PDP in connection with the transaction.
2024 Summary Financial Outlook
Turtle Beach is pleased with its share gains experienced during the holiday season, its ongoing cost improvement initiatives, and its 2024 product portfolio, all of which continue to highlight the meaningful, recent positive momentum on both the top and bottom-line for the Company.
The acquisition of PDP adds significant financial benefits to Turtle Beach that, in conjunction with synergies realized, fundamentally transforms the financial profile of the Company.
Accordingly, the Company expects 2024 net revenues to be in the range of $370 million to $380 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 Company's product plans for 2024. Additionally, in light of the Company's strong execution on its efficiency and profitability initiatives, the Company expects pro forma combined Adjusted EBITDA to be between $51 million and $54 million, which incorporates approximately 9 months of operations from PDP.
In the first full four quarters of operation (Q2 2024 through Q1 2025), the combined Company expects total net sales to be in the range of $390 - $410 million and Adjusted EBITDA to be in the range of $60 - $65 million.
Intends to Launch a Modified Dutch Auction Tender Offer within One (1) Month
To drive further value for Turtle Beach shareholders, the Company announced today that it intends to launch a modified "Dutch Auction" Tender Offer (the "Tender Offer") to purchase up to $30 million in value of its common stock (the "Common Stock") 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, using available cash on hand and available borrowing capacity. On March 12, 2024, the closing price of the Common Stock was $11.03 per share, setting the low-end of the Tender Offer range at a 25% premium to the most recent closing share price. The Tender Offer is anticipated to commence on or about April 10, 2024 and is expected to expire at 12 midnight, New York City time, at the end of the day on or about May 10, 2024, unless extended or terminated.
A modified "Dutch Auction" Tender Offer allows shareholders to indicate how many shares of Common Stock and at what price within the range described above they wish to tender their shares. Based on the number of shares tendered and the prices specified by the tendering shareholders, the Company will determine the lowest per-share price that will enable it to acquire up to $30 million in value of Common Stock.
The Company's Board believes the modified "Dutch Auction" Tender Offer structure is a mechanism that affords shareholders with an opportunity to obtain liquidity with respect to all or a portion of their shares, with less potential disruption to the share price and the usual transaction costs inherent in open market purchases and sales.
Executive Management and the Board of Directors of Turtle Beach do not plan on participating in the tender offer.
Announcement of Chief Executive Officer
The Company announced that Turtle Beach's Board of Directors has appointed Cris Keirn as Chief Executive Officer and to the Board of Directors, effective immediately. The appointment concludes a comprehensive CEO search process, launched by the Board in the second quarter of 2023, with the mandate to appoint a highly qualified leader with extensive product innovation, operational and transformational experience, and capable of delivering strong financial and operational results to drive future growth across the business.
Mr. Keirn joined Turtle Beach in 2013 and has been a key contributor in the transformation of Turtle Beach's product portfolios, including in his role as Vice-President of Business Planning and Strategy prior to his executive role in sales. Mr. Keirn has also led sales operations, customer care and market analytics teams for the Company. Prior to joining Turtle Beach, Cris held leadership positions over a 17-year span in multiple divisions at Motorola across engineering, product management, operations, quality and customer relations.
"I'm honored to work with the amazing team at Turtle Beach, now including our new colleagues from PDP, as we continue to deliver fantastic new products for gamers and value to our shareholders," said Keirn. "Working with our industry partners, and with the combined expertise of our teams, we will drive a transformational change to the company's scale and execution with innovation and expansion of our leadership positions across gaming accessory categories."
"After a comprehensive review of strategic actions and significant engagement by the Board of Directors, I am excited about the announcements made today that we believe will create substantial value for Turtle Beach shareholders," said Terry Jimenez, Chairman of the Board of Directors and Chairman of the Value Enhancement Committee. "Acquiring PDP, announcing a modified Dutch auction tender offer, and appointing Cris Keirn as our next CEO are significant outcomes that are a result of a thorough review of our business opportunities ahead. We are pleased to welcome the PDP team to Turtle Beach, and we look forward to benefiting from our improved financial profile, gaming product portfolio and industry-leading team. In addition, we are pleased to welcome both Cris and Dave to our Board, both of whom are excellent additions. We're also excited to have Cris leading the business as CEO and believe his industry expertise and leadership skills are critical to advancing our strategy to drive growth across our gaming accessories businesses and generate substantial profit. Ultimately, each of these outcomes better position the Company for future success and value creation for shareholders."
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