Why Cirrus Logic's Acquisition of Wolfson Microelectronics Makes Sense

Pending Wolfson investor approval, Cirrus Logic will acquire the Edinburgh-based multinational for a value of approximately $467 million.

Apr 29, 2014 at 2:00PM

Earlier today, Cirrus Logic (NASDAQ:CRUS) and Wolfson Microelectronics plc tentatively agreed upon terms that would allow Cirrus Logic to acquire Wolfson at about a 75% premium per share. As such, Wolfson shares are up nearly 73% given their closing price yesterday. Considering Cirrus Logic's President and CEO Jason Rhode has publicly reiterated time and time again that Cirrus Logic would only use its cash for acquisitions that make sense -- think Acoustics Technology, last October) -- it was only a matter of time until his company identified yet one more takeover target.

Unfortunately, for the past several months, Cirrus Logic's stock has taken a beating that the vast majority of investors obviously felt it deserved, losing roughly a third of its value in a matter of months. However, for investors who stayed the course and continued to build their positions (something akin to a dollar-cost averaging investing strategy) now stand ready to reap the benefits of their conviction.

Making its move
Although most Cirrus Logic investors anticipate many of the latest technology advancements (e.g., 55-nanometer builds) to hit the company's financials in yet one more year, the past six months now point to what's really coming down the pipeline. With its acquisition of Acoustics and then the relatively quick turnaround to push for acquiring Wolfson, Cirrus Logic is quickly cornering the audio market by augmenting its industry-leading capabilities with outside IP and technology that add complementary value to what it already does well.

This cannot be any clearer than with what Cirrus Logic recently released in its low-power voice processor offerings. In its latest round of catalog releases, Cirrus Logic's CS48LV12/13 processor incorporates Acoustics's SoundClear technology that better isolates, and then delivers, the actual speaker's language, filtering out background and ambient noise.

Considering Wolfson has similar complementary capabilities, Cirrus Logic has already proven itself capable of quickly turning around and transitioning to an integrated offering that combines the best of the best such that customers have a more integrated audio solution that will likely simplify the production process from their end.

More customers to serve
Interestingly, just like its Acoustics acquisition allowed, Cirrus Logic's acquisition of Wolfson opens doors that perhaps were previously closed or proving harder to open. Seeing as Wolfson already has many customers in Silicon Valley, as it stated in today's quarterly results press release, Cirrus Logic likely already has a strategy in place that involves leveraging its acquisition to gain additional client relationships. In fact, in the same press release from today, Wolfson asserts it has "strengthen[ed] its relationship with Samsung with a number of design wins across a widening rang of products, including its GALAXY range of smartphones (including LTE models), tablet computers, digital still cameras, televisions, and personal computers."

Perhaps now investors clamoring for Cirrus Logic to do more about diversifying itself away from Apple, (NASDAQ:AAPL) will pull back and look at what long-term investors have always seen, but Cirrus Logic is now doing. Cirrus Logic has been very prescient with its acquisition strategy, not only focusing on companies with similar cultures (as it has stated in the past), but also by discovering smaller, well-placed companies. These acquisition targets can help it both on the product side as well as the client-building side.

Foolish final thoughts
What investors now need to determine is how much these latest acquisitions will determine future growth for Cirrus Logic. Despite many claims to the contrary, Cirrus Logic has maintained a strong relationship with Apple over all these years, and Apple has a proven track record of being a very difficult customer to even adequately serve.

As such, once Cirrus Logic gets in the door at new customers given its latest round of acquisitions these past few months, investors can expect Cirrus Logic's world-class offerings to find their way into customer products once these new clients get a feel for how customized Cirrus Logic's approach to service is. For investors looking for a strong derivative Apple play that is simultaneously diversifying its customer base, Cirrus Logic still looks like a great place to start researching, especially given the latest developments.

The biggest thing to come out of Silicon Valley in years
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now... for just a fraction of the price of AAPL stock. Click here to get the full story in this eye-opening new report.

Hugo St. John III owns shares of Cirrus Logic. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Cirrus Logic. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers