Synaptics to Buy DisplayLink, Boost Video Interface Capability

Synaptics Incorporated SYNA recently inked a definitive agreement to acquire high-performance video compression technology provider — DisplayLink — for $305 million. The deal is expected to close during Synaptics’ first-quarter fiscal 2021.

DisplayLink’s software compression technology eases the docking and casting of high bandwidth video from any device to any display that supports USB, Ethernet or WiFi. The technology supports multi-OS environments, including Microsoft’s MSFT Windows, Apple’s AAPL MacOS, Alphabet’s GOOGL ChromeOS, and Ubuntu Linux.

Immediately Accretive to Revenues and Earnings

The acquisition is likely to be immediately accretive to the company’s non-GAAP gross margin, operating margin and earnings per share as soon as it closes. The buyout is also expected to add approximately $94 million in annual sales for this Zacks Rank #1 (Strong Buy) company.

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Synaptics is expected to use its existing cash balance to fund the transaction. As of Mar 31, the company had cash and cash equivalents of $472 million. Additionally, Synaptics divested its mobile LCD TDDI business in April, strengthening its P&L and balance sheet and positioning it better to invest in acquisitions to expand the portfolio.

Synaptics Incorporated Price and Consensus

Synaptics Incorporated Price and Consensus

Synaptics Incorporated price-consensus-chart | Synaptics Incorporated Quote

DisplayLink to Complement Synaptics’ IoT Business

DisplayLink’s technology is believed to be the perfect complement to Synaptics’ current Internet of Things (IoT) product portfolio. Synaptics derives a significant portion of revenues from its existing IoT business. Notably, it expects IoT to contribute 23% of total revenues in fourth-quarter fiscal 2020.

In order to strengthen the IoT product portfolio, Synaptics made a significant acquisition earlier this month. On Jul 7, the company revealed that it has inked a definitive agreement to acquire Broadcom’s AVGO IoTconnectivity product portfolio for $250 million. Per the agreement, Synaptics will also gain manufacturing rights to Broadcom’s wireless IoT products and certain rights to its Wi-Fi, Bluetooth and GPS/GNSS products.

It is expected that the recent acquisitions will fortify Synaptics’ presence in the fast-growing consumer IoT market and revive its IoT business. Per Fortune Business Insights, the global IoT market is expected to hit $1,463.19 billion by 2027 from $250.72 billion in 2019, witnessing a CAGR of 24.9% during 2020-2027.

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