What happened

Furniture maker HNI (HNI -2.28%) is paying up to acquire Kimball International (KBAL), and that has shareholders on edge. Shares of Kimball are up more than 80%, and HNI shares are down as much as 17%, as Wall Street digests the particulars of this transaction.

So what

It has been a tough year for goods makers, and furniture manufacturers HNI and Kimball are no exceptions. Investors have been worried inflation will slow the economy and eat into the purchase of big-ticket items, leading shares of both companies to fall by more than 10% over the past year.

HNI sees the drop as an opportunity. On Tuesday, the company announced plans to buy Kimball for $485 million in cash and stock. Terms of the deal call for Kimball owners to receive $9 in cash and 0.1301 shares of HNI for each Kimball share owned, or about $12.50 per share at current prices.

That's significantly above Kimball's $6.71 closing price Monday, and the stock is taking off as a result.

Kimball makes furniture for commercial settings including offices, healthcare facilities, and hotels. HNI said that the combination would give it a more comprehensive offering.

"We are excited about joining with Kimball International, a high-quality company we have long admired for its recognized brands, furnishings expertise built over 70 years, and established relationships across multiple sectors," HNI CEO Jeff Lorenger said in a statement. "The combined company will have a stronger platform for growth, delivering significant benefits for our shareholders, members, dealers, and customers."

Now what

The question for HNI investors is whether the acquirer overpaid. The deal values Kimball at about 6.8 times adjusted EBITDA, inclusive of expected synergies. That's a discount to HNI's current multiple.

Mergers come with a lot of risk. HNI is expecting to generate about $25 million in cost cuts from the combination, but that will take three years. For now, there is little for investors to do other than hope the integration goes as HNI plans. With the added risk, some shareholders appear to be opting to watch it play out from the sidelines.