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Cherry targets multiple electronics acquisitions to boost sales to EUR 400m – CEO

Cherry [ETR:C3RY], a German manufacturer of computer peripherals and electronic components, is on the hunt for several acquisitions as it looks to grow annual revenue to EUR 400m in the coming years, CEO Rolf Unterberger told Mergermarket.

The Munich-based company is interested in acquiring makers of “high-quality” products that complement its portfolio in gaming and professional equipment and boost its product range, Unterberger said, speaking on the sidelines of the 34th Münchner Kapitalmarket Konferenz.

It is also interested in companies that can grow Cherry’s sales and distribution channels, as well as targets to expand its local and regional footprint in markets in Europe, Asia and the US, he said.

Over the next three to five years, Cherry aims to boost turnover to EUR 400m through organic and inorganic growth, with each pillar slated to contribute around 50% of the increase in sales turnover, he added. It forecasts around EUR 130m-EUR 140m in sales in FY22, Unterberger said.

It would ideally complete three or four acquisitions in the coming years as part of its inorganic growth plans, he said, adding that it is possible one acquisition could be closed in the next few months.

Cherry expects its sweet spot to be targets posting around EUR 25m-EUR 35m revenue, which it can more easily integrate, although it would consider looking at candidates posting up to around EUR 100m in sales as well, he said. Targets could be based anywhere worldwide, he added.

The company is currently carrying out an up to EUR 25m share buyback programme and could use some of the equity from this as “currency” to finance future M&A activities, he said. A deal’s financing would ultimately depend on the type of target, and could include cash as well as debt if needed, he added.

Cherry consistently screens the market for opportunities and also receives inbound approaches from targets and their advisors, Unterberger said. It has an inhouse M&A team scouting the market and also receives some external support with target search and due diligence, he added, declining to elaborate.

The business has some experience with M&A, having acquired Active Key, a German maker of washable keyboards and devices, in May 2021 for an undisclosed sum, he said. That deal helped Cherry expand its range of peripheral devices for the healthcare sector, he added.

In 2020, it acquired Theobroma Systems, an Austrian developer and manufacturer of embedded systems, for an undisclosed sum.

Discussions with other potential targets this year did not result in a deal, often due to differences in valuation expectations or a lack of strategic fit, Unterberger said, adding that most targets Cherry looks at tend to be family- or founder-owned firms.

Cherry develops and manufactures gaming and professional electronics peripherals and components, including wireless and ergonomic keyboards and mice, eHealth card terminals, gaming headsets and MX switches, according to its website.

The company held its Frankfurt IPO in June 2021, as reported. It was previously majority-owned by New York-based sponsor Argand Partners, which acquired its stake in the firm from Hamburg-based sponsor GENUI in 2020.

Argand, which continues to hold a 30% stake in the firm, has no intention of selling down its stake at present, Unterberger said.

Cherry’s professional device segment is growing “very well” compared to the overall market, he said. The rise of hybrid work arrangements has resulted in a large, embedded base of devices that need to be replaced and maintained, creating additional sales, as many workers now have two sets of electronics equipment for their jobs, he said.

While its gaming segment has lost some traction as consumers cut back on spending due to inflation following a Covid-19 bump, it expects growth in Esports will help its gaming switches outperform the space, Unterberger said. Cherry is also working to expand its own ecommerce sales channels and B2B networks, he added.

Digitisation of the healthcare sector is an additional growth driver for the company and its B2B sales channels in particular, he said, adding that Cherry aims to roll out more products in this segment.

It is unclear whether its market will see much consolidation in the coming years, as most players, including gaming companies hurting from the market slowdown, look determined to remain independent, Unterberger said.

Recent deals in its space include HP’s [NYSE:HPQ] acquisition of HyperX, the gaming division of US-based Kingston Technology, in February 2021.

Cherry’s competitors vary by segment and include Swiss-based Logitech [NASDAQ:LOGI] for computer peripherals; US-based Corsair [NASDAQ:CRSR] and Dell [NYSE:DELL] for gaming devices; and WorldCom-owned [EPA:WLN] Ingenico for card terminals, Unterberger said. Kyoto-based electronics components maker Omron [TYO:6645] focuses on more high-priced devices and is typically not a direct competitor, he added.

Cherry has a market cap of around EUR 173m and a free float of 49.8%.

It forecasts EUR 130m-EUR 140m revenue and an adjusted EBITDA margin of 13%-15% for FY22, according to its 3Q report. It generated EUR 168.5m revenue and an adjusted EBITDA margin of 29% in FY21, according to its annual report. It had 554 employees at the end of last year.