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HP (HPQ) to Boost Peripheral Business With $3.3B Poly Buyout

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HP Inc. (HPQ - Free Report) recently inked a definitive agreement to acquire the workplace collaboration solutions provider, Poly , in a transaction worth $3.3 billion to boost its peripheral business. Following the announcement, shares of Poly jumped 52.6%, while HP’s shares dropped 2.7% lower on Monday.

Per the deal, HPQ agreed to pay $40 in cash for each share outstanding of Poly, which represents a premium of 53% from last Friday’s closing price, translating into $1.7 billion in cash. Including POLY’s debt, the transaction is valued at $3.3 billion.

The transaction is anticipated to close by the end of the calendar year 2022, subject to shareholders’ approval and satisfaction of customary closing conditions.

HP Inc. Price and Consensus HP Inc. Price and Consensus

HP Inc. price-consensus-chart | HP Inc. Quote

HPQ Bets on Growing Hybrid Work Opportunity

Formed by the merger of Plantronics and Polycom in 2018, Poly is a leading communications company that manufactures integrated communications and collaboration solutions. The company’s premium audio and video products connect people with incredible clarity and work seamlessly on any conferencing platform.

Therefore, with this acquisition, HPQ seems to capitalize on a boom in demand for a hybrid work setup following the pandemic. The rise in hybrid work is driving demand for technologies that support seamless collaboration across home and office environments.

As a result, organizations are reconfiguring their offices with technologies that enable hybrid work and collaboration. Meanwhile, office workers are also investing to improve their home setups to support frequent transitioning between the office and home.

The trend is likely to boost demand for computer peripherals and workforce solutions. According to HP, the peripheral market currently represents a $110 billion opportunity, which is growing 9% annually. The company also noted that workplace collaboration solutions represent a $120 billion business at present, which is growing 8% annually.

HPQ’s strengths across compute, device management and security, combined with Poly’s devices, software and services, will create a robust portfolio of hybrid meeting solutions.

Amid the growing opportunity in the hybrid work environment, the market has seen several acquisitions. The most notable was the acquisition of the workplace messaging app, Slack Technologies Inc., by the business software maker, Salesforce (CRM - Free Report) , in a transaction worth $27.7 billion in 2021. The Slack acquisition positioned Salesforce as the leader in the enterprise team collaboration solution space.

Poly Buyout to Boost HPQ’s Peripheral Business

As the work-and-learn-from-home trend continues and is likely to sustain in the post-pandemic scenario, people and organizations are spending more on remote services and improving at-home technology products. This, in turn, is driving demand for HP’s products.

Considering the aforementioned growing opportunities in the hybrid work space, the PC maker is trying to enhance its peripheral and workforce collaboration solutions portfolios. For this reason, last year, HPQ acquired the Canada-based global remote computing software innovator, Teradici Corporation.

Teradici’s solutions enable secure access to high-performance computing from any PC, tablet or Chromebook. Thus, the acquisition has broadened HPQ’s capabilities in the Personal Systems segment by delivering new compute models and software-enabled digital solutions, which are compliant with the hybrid work environment. It will also propel the company’s remote services and solutions to new heights.

We consider that the acquisition of Poly will help HP further bolster its position in the computer peripherals and workforce collaboration solution markets, which come under the company’s Personal System business segment.

The company projects the transaction to be immediately accretive to its revenues, margins and non-GAAP earnings per share. With enhanced hybrid work solutions combined with its scale and go-to-market capabilities, HP expects to realize substantial revenue synergies in the computer peripherals and workforce collaboration solution spaces.

By combining Poly’s products with its own personal computer portfolio, HPQ will be able to cross-sell across its global consumer and commercial sales channels, which will drive incremental sales for the company.

HPQ intends to accelerate POLY’s revenue growth to an approximately 15% CAGR in the first three years after the transaction closes and projects to achieve $500 million of revenue synergies by fiscal 2025. Moreover, the company projects Poly’s operating margin to improve by six percentage points by fiscal 2025, driven by scale efficiencies across supply-chain, manufacturing and overhead expenses.

Zacks Rank & Stocks to Consider

Currently, HP, Poly and Salesforce each carry a Zacks Rank #3 (Hold). Shares of HPQ, POLY and CRM have rallied 24.7%, 8.5% and 2.1%, respectively, over the past year.

A better-ranked stock from the broader technology sector is Jabil (JBL - Free Report) , which currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Jabil’s third-quarter fiscal 2022 earnings has been revised upward to $1.62 per share from $1.46 30 days ago. For fiscal 2022, earnings estimates have been revised upward by 67 cents to $7.25 per share in the past 30 days.

Jabil’s earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 13.5%. Shares of JBL have rallied 19.7% over the past year.

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