Logitech announced it is acquiring Jaybird, a developer of wireless earbuds and activity trackers for the fitness market, for $50 million—plus an earn-out of up to $45 million based on future performance. The nearly 50/50 cash to earn-out ratio in this deal is a bit surprising. There must have been a substantial delta in valuation expectations with the parties using an earn-out to bridge the gap.
“The nearly 50/50 cash to earn-out ratio in this deal is a bit surprising.”
This deal seems to be consistent with Logitech’s growing focus on the mobile- and active-audio lifestyle. Interestingly, this is their second acquisition in the earbud sector, after acquiring Ultimate Ears in 2008, which we advised on. With Jaybird, Logitech gets a premium well-known brand in the growing Bluetooth fitness sector. Further, with rumors of the headphone jack going away on the next iPhone, Bluetooth appears to be the connectivity platform of choice and Logitech gets a market leader in the segment with Jaybird. However, this market is not for the meek—large- and well-capitalized players like Bose and Beats are investing heavily in product development, along with marketing and promotion, to drive consumer purchases. With stiff competition at the high-end and “no-name” commodity players biting at the bottom, finding a sweet spot and a loyal consumer demographic can be challenging.
Looking deeper, one driver for the deal must be the “optionality” that Logitech gets to the newfound rapidly growing fitness wearable market that grew over 170% in 2015. Jaybird invested substantial resources developing its REIGN fitness trackers and Logitech may find value in this opportunity. Coupling Jaybird’s specific product development expertise with Logitech’s global sales and marketing footprint will present an exciting growth opportunity if Logitech wants to continue to invest and innovate in the crowded and competitive fitness tracker market.