GN Store Nord

Amplifon has undertaken a vertically integrated acquisition by purchasing GN Store Nord’s hearing business for DKK17bn (approximately €2.3bn), below AV estimates of DKK19.6bn. The transaction involves Amplifon paying GN DKK12.6bn in cash and issuing 56 million of its shares. Post-transaction, GN will hold approximately 16% equity in Amplifon.

The transaction proceeds exceed GN’s net interest-bearing debt, enabling management to significantly reduce debt, invest in ongoing business for sustainable growth, and return capital to shareholders. Despite challenges in the Enterprise and Gaming segment, the additional cash and management’s focus on the Audio sub-segments should enable GN to revitalize its business in upcoming quarters.

This is a radical change of profile for GN Store Nord. With the sale of its Hearing Aid division for DKK17bn,  GN Store Nord is now a specialized audio and video company. This makes it a direct, "pure-play" competitor to Logitech across two main battlegrounds: the office (Enterprise) and the desk (Gaming). 

As the company is now debt free, the inherent risk is also substantially reduced. We also expect the deal will also have a mechanical positive impact on the ROCE. The Hearing division was a "heavy" business. It required significant R&D, manufacturing plants, and carried massive goodwill from past acquisitions (like Beltone). Yes it had a higher EBIT margin but lower ROCE which is what matters at the end of the day.  

The stock jumped c20% yesterday on the news but still trades at a substantial discount to Logitech, which should be the new reference point rather than the hearing aid peers. Still a BUY in our opinion despite the 20% rise in share price yesterday.  

Conversely, we are more cautious on the deal from the Amplifon's standpoint. This is a game change in terms of size and strategy for Amplifon. If the integration of the assets is successful and is going according to plan, this will prove to be a good deal, even a great deal. But as in any such case, the execution risks are massive. Let's wait and see until we have more details on the plan. 

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