Internet of Things chipmaker Synaptics stepped up its diversification drive on Monday by announcing a deal to buy wireless chipmaker DSP Group. SYNA stock jumped on the news while DSPG stock rocketed.
San Jose, Calif.-based Synaptics agreed to pay $22 a share for crosstown peer DSP Group. The acquisition has an enterprise value about $450 million, net of DSP cash on hand of about $130 million. The companies expect the transaction to close by the end of the year.
On the stock market today, SYNA stock rose 3.7% to close at 188.23. DSPG stock surged 17.9% to 21.99.
Synaptics is diversifying from its legacy business of touch pads and display controller products for notebook PCs and smartphones. In recent years, it has added connectivity and artificial intelligence-enhanced video, vision, audio, speech and security processing. It now makes so-called "Internet of Things" or IoT chips for automobiles, e-bikes, headsets, sound bars, streaming media devices and other gadgets.
Third Major Acquisition For New CEO
DSP Group makes voice and wireless chipsets for communications and IoT applications.
The DSP Group acquisition is the latest strategic move by Synaptics Chief Executive Michael Hurlston, who joined the company in August 2019.
When Hurlston started at Synaptics, SYNA stock was trading near 34. In intraday trading on Monday, SYNA stock notched a record high of 189.48.
Under his leadership, Synaptics has divested noncore assets and made several acquisitions. In July 2020, it purchased DisplayLink, a leader in PC docking systems and video compression technology. That same month, it bought Broadcom's wireless IoT connectivity portfolio.
SYNA Stock Extended From Breakout
Hurlston told Investor's Business Daily that he believes Synaptics is being undervalued by Wall Street.
"In the semiconductor space, we have one of the lowest (earnings) multiples out there," he said. "From a multiple standpoint, we don't think we've been rewarded for all the work we've put in."
For instance, when he arrived at Synaptics, the company's gross profit margin was stuck at 38%. Last quarter, Synaptics had an adjusted gross margin of 57.5%.
On June 14, SYNA stock broke out of a cup base at a buy point of 147.03, according to IBD MarketSmith charts. On Monday, it was trading in the 20%-to-25% profit-taking zone, based on IBD trading principles.
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