|Consolidation And Private Equity Changes The AV Industry|
|Home Theater News Industry-Trade News|
|Written by Jerry Del Colliano|
|Thursday, 31 May 2007|
You must have had a broken TV or avoided any business related news website in the last week or two in order to miss the news about DaimlerChrysler selling off the Chrysler portion of its business. In a 7.4 billion dollar deal, Cerberus, a private equity firm, bought the struggling U.S. carmaker from DaimlerChrysler at a huge discount from its 40 billion dollar, 1998 purchase by Daimler. The gamble is that a private equity firm, with its deep pockets of investment capital, can start to look three years down the road in terms of development, without worrying as much about what Wall Street is going to say every business quarter. Without question, the private equity movement is changing the American business landscape, and this includes the consumer electronics business.
In the world of high-end audio video, just a few weeks ago another private equity firm, KKR, announced that it is taking publicly traded Harman International Industries, private. As the makers of Mark Levinson, Lexicon, Revel, Infinity, JBL, and a dominant force in the car audio business, Harman has been a successful stock in recent years. Meanwhile, a public company, Planar, bought high-end video giant Runco last week in a $36,000,000 deal. Nortek, a former publicly traded company, has bought up companies in recent years ranging from the likes of like Sunfire, SpeakerCraft, Panamax, Elan, Niles, Omnimount and beyond. D&M Holdings has expanded past just the Denon and Marantz brands to own Escient, Snell, Boston Acoustics, McIntosh and ReplayTV. Klipsch has picked up more and more brands including Aragon, Acurus, Jamo and now the assets of API, which include Energy and Mirage.
This trend is prevailing in the American marketplace and is making its way into the once “mom and pop” audio and video business with varying results. As PC convergence makes its retarded stroll toward consumer relevance, can a big parent company, loaded with Wall Street or private equity cash move quickly enough to keep up with the rapidly changing CE market? Time will tell. Is consolidation good overall for any industry? That’s also hard to tell. Adding in economies of scale can make a company more profitable however just being profitable in the short term isn’t enough to guarantee the long-term success that many of the brands mentioned above have enjoyed with their recent buyouts and takeovers. The thought of radio giant, Clear Channel comes to mind when I think of industry consolidation. Before the 1996 legislation, allowing companies to own more than a handful of TV and radio stations, the radio industry enjoyed conservative growth and lots of diversity. By the dotcom boom of the late 1990s, radio was booming right along with Internet stocks to the point where Infinity (Viacom) and Clear Channel owned pretty much every major radio station you could think of. Their profits in the short-term soared, but with no new formats being developed, aggressive business practices, and their best talent leaving to satellite radio – a pay per month format – these radio properties are a shell of what they once were. Clear Channel, despite owning all of the radio industry trade publications (including eventually my father’s Inside Radio) and a firm control of the media, could not sustain their high stock price forever. Clear Channel is now in the process of being bought out by a private equity firm. Infinity is suffering the loss of both its boss Mel Karmazin as well as their national morning landmark, Howard Stern to Sirius Satellite radio, resulting in revenues and ratings at former Stern stations to plummet.
Signs don’t point to a gloom and doom scenario for the audio-video business as it heads toward a round of consolidation and takeovers. Stereotypically, many AV companies are engineering driven, and these larger money firms can help them grow past their limitations while still keeping their identities in the industry. The idea of Gordon Gecko-style hostile takeovers isn’t really where we are heading. The AV industry is booming now like never before and it has attracted non-enthusiasts, Wall Street, and private money. On many levels, the attention should be considered quite a compliment to those who built the companies and the industry as a whole.
Sources: CNN.Money.com, NYTimes.com