Resideo Technologies Inc. (NYSE: REZI), a manufacturer and distributor of technology-driven products and solutions, and Snap One Holdings Corp. (Nasdaq: SNPO), the provider of smart-living products, services, and software to professional integrators, have announced a definitive agreement in which Resideo will acquire Snap One for $10.75 per share in cash, for a transaction value of approximately $1.4 billion, inclusive of net debt. Upon closing, Snap One will integrate into Resideo’s ADI Global Distribution business.
The transaction will combine ADI’s strong position in security products distribution and Snap One’s complementary capabilities in the smart living market and Control4 technology platforms. Together, ADI and Snap One would be poised to provide integrators an increased selection of both third-party products and proprietary offerings through an extensive physical branch footprint augmented by digital capabilities.
“The acquisition of Snap One is an exciting step in Resideo’s continued transformation through portfolio optimization, operational enhancements, and structural cost savings actions,” commented Jay Geldmacher, Resideo’s president and CEO. “ADI and Snap One are highly complementary businesses and together will meaningfully enhance our strategic and operational capabilities as a significant player in attractive growth categories. We are excited about the enhanced value proposition through increased product breadth, local availability, support services, and broad market expertise, as well as the future opportunities this creates for integrators serving residential and commercial markets. In addition, the investment by Clayton, Dubilier & Rice is a testament to the strategic and financial merits of this transaction and provides financial flexibility as we continue to transform and optimize our portfolio. We look forward to the ADI and Snap One teams working together to drive value for all stakeholders through executing on the substantial business and financial synergies we see in combining the two businesses.”
Snap One CEO John Heyman noted that Snap One has grown from a startup built by entrepreneurial integrators (and originally named SnapAV) to “an industry leader in smart technology, delivering seamless experiences to consumers and high-quality services and support” to integrators. He called his company’s acquisition by Resideo, “the right next step to capture new opportunities” to bring Snap One solutions to market.
“The future of smart living is here,” Heyman said. “Demand for connected technology products continues to grow, and Resideo is the right owner to drive our expansion. We believe this transaction will deliver compelling value to our stakeholders and will create opportunities for our people and integrator partners.”
Nathan Sleeper, CEO of Clayton, Dubilier & Rice (CD&R) added that his private equity firm is “excited to support Resideo” on this “highly strategic acquisition and in their ongoing transformation.” Sleeper will join Resideo’s Board of Directors to help support the business as it executes on this transaction and “the significant opportunity… available over the coming years.”
According to a statement from the Resideo, the acquisition will combine Snap One’s capabilities for smart living integrators with ADI’s complementary position in adjacent security products distribution. This cross-category expansion will allow the combined organization to materially deepen relationships with integrators to better serve their customers and expand their businesses.
The combination is expected to “meaningfully accelerate” ADI’s existing exclusive brands strategy, leveraging Snap One’s “award-winning proprietary product portfolio and product development expertise” while providing broader availability through ADI’s network of commercial and residential integrators and omni-channel capabilities. The combined company intends to leverage increased opportunities around innovation to drive value for integrators through a pipeline for proprietary products.
Snap One generated 66% of sales from proprietary products in 2023 and these offerings typically carry significantly higher gross margin than third-party products, according to the company.
The announcement went on to says that ADI’s and Snap One’s professional integrators will benefit from “significant synergy on go-to-market” with Snap One’s e-commerce expertise and integrator support platforms and ADI’s 195 stocking locations and extensive digital capabilities. The combination is expected to create a true omni-channel experience for integrators, simplifying the buying experience and enhancing product availability. Additional opportunity exists to enhance value within the Control4 integrator base through increasing service levels, rapid product fulfilment, and expanding exclusive offerings.
For Wall Street investors, the transaction is expected to be “accretive to Resideo non-GAAP EPS” in the first full year of ownership, with “favorable revenue growth and margin profile to ADI and Resideo as a whole.” Transaction financing has been structured to allow Resideo to preserve financial flexibility for future strategic initiatives.
The transaction is valued at approximately $1.4 billion, including forecasted net debt of Snap One at the closing of approximately $460 million. This represents a 7.4x multiple on Snap One’s Adjusted EBITDA for the twelve months ended December 29, 2023, as further adjusted by including Resideo’s projected annual run-rate synergies of $75 million.
The transaction is expected to be completed in the second half of 2024, and is subject to customary closing conditions, including receipt of applicable antitrust and other regulatory approvals. The transaction has been unanimously approved by the Boards of Directors of Resideo and Snap One. Private investment funds managed by Hellman & Friedman LLC, holding approximately 72% of the outstanding common shares of Snap One, have executed a written consent to approve the merger, thereby providing the required stockholder approval for the transaction.
Resideo intends to use proceeds from committed debt financing, cash on hand, and a $500 million perpetual convertible preferred equity investment from Clayton, Dubilier & Rice LLC (“CD&R”) to fund the transaction. Terms of the CD&R investment include a 7% coupon, payable in cash or payment-in-kind at Resideo’s option, and a conversion price of $26.92. CD&R brings a long track record of value creation through its investments and significant experience in the specialty distribution market. Effective upon the closing, CD&R will have the right to designate two members to the Board of Directors of Resideo.
