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Teledyne (TDY) Set to Buy FLIR Systems for $8B, Shares Fall 8%

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In a bid to expand its imaging sensor portfolio, Teledyne Technologies, Inc. (TDY - Free Report) recently agreed to buy FLIR Systems (FLIR - Free Report) , one of the pioneers in thermal imaging, in a cash-and-stock deal worth $8 billion. Teledyne expects the purchase to be accretive to its earnings, excluding transaction costs and intangible asset amortization, in the first full calendar year following the acquisition.

The transaction is expected to close in the middle of 2021, subject to the receipt of required regulatory approvals.

Investors’ Reaction

As expected, following the aforementioned acquisition news, share price of Teledyne slumped 7.6% in the last trading session while that of FLIR Systems gained a solid 19.2%. This was in line with how the stock market usually responds to such buyout news, with the rationale behind such contrasting price movement being the market premium that the acquiring company must pay on the target company's stock.

Teledyne’s Growth Prospects Post Acquisition

The cameras, sensors and sensor systems that both Teledyne and FLIR Systems manufacture are uniquely complementary with minimal overlap. Therefore, if such products are being sold together, they will be able to capture larger market share. So, by acquiring FLIR Systems, Teledyne will not only expand its imaging sensor portfolio in terms of volume but the deal will also help the acquirer to gain production efficiency as well as economies of scale.

While factors like increased incorporation of high-resolution cameras equipped with image sensors in mobile device as well as rise in use of image sensors in improved medical imaging solutions have been boosting the image sensor market, the COVID-19 crisis has been a boon for this industry. In particular, the rapid spread of COVID-19 over the past year has pushed up demand for thermal cameras and other thermal sensor systems.

Looking ahead, the image sensor market size is projected to reach $28 billion by 2025 from an estimated $18.5 billion in 2020, at a CAGR of 8.6%, as estimated by the Markets and Markets research firm. Such solid market growth projections must have also encouraged Teledyne to acquire FLIR Systems. No doubt, on completion of the transaction, Teledyne will successfully reap the benefits of the image sensor market’s projected growth, through revenue and profit expansion.

Recent Acquisitions in the Defense Space

Last year, we witnessed quite a few major mergers and acquisitions within the U.S. defense space, irrespective of the global volatile market conditions caused by the impact of the COVID-19 pandemic. Let’s have a look at a few such acquisitions, which took place in 2020.

In December 2020, Leidos Holdings (LDOS - Free Report) signed an agreement to buy 1901 Group, a leading information technology services and cloud solutions provider, for $215 million in cash. At the end of July, BAE Systems (BAESY - Free Report) completed the acquisition of the Collins Aerospace Military Global Positioning System (GPS) business from Raytheon Technologies.

Price Movement & Zacks Rank

Teledyne’s stock has gained 18.9% in the past six months compared with the industry’s rally of 23.8%.

FLIR Systems’ shares have gained 25.1% in the past six months compared with the industry’s rise of 4.8%.

Both Teledyne and FLIR Systems currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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