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Directed Cuts Deal To Buy Polk Audio

8/22/2006 01:34:00 PM Eastern

Vista, Calif. -- Directed Electronics has reached a definitive agreement to acquire Polk Audio, marking its second speaker-brand acquisition in as many years and making it the top home-speaker brand in dollar volume at retail, the company said.

The deal marks a continuation of a recent spate of speaker company acquisitions. Last week, speaker supplier Klipsch announced that it completed the acquisition of Canadian home-speaker maker Audio Products International. And late last year, D&M Holdings, owner of such component-audio electronics brands as Denon and Marantz, acquired speaker maker Boston Acoustics.

The Polk acquisition, priced at about $136 million in cash, is scheduled to close during the third quarter.

Polk Audio enjoys No. 3 home speaker dollar share at retail in the United States after Klipsch and Bose, said Directed president Jim Minarik. Combined sales of Polk and Definitive Technology, purchased two years ago, put Directed in the lead, he claimed.

Because Polk is profitable and successful, Directed won’t fix what isn’t broken, Minarik said. Directed will keep top Polk management to continue running the home and car speaker company out of Polk’s Baltimore offices. Polk co-founders and co-owners Matt Polk and George Klopfer, who were Polk advisers and board members but were not involved in day-to-day operations for several years, will remain on as advisers.

Definitive Technology today operates as independently as Polk will, Minarik said.

The latest acquisition is part of Directed’s strategy to be “the top player” in its markets, not to save a struggling company through consolidation, Minarik continued. Directed’s brand enjoys top share in the car security/remote convenience market and top position in retail-level satellite radio sale, thanks to its distribution agreement with Sirius Satellite Radio, he said.

Polk brings with it retail accounts such as Circuit City, Tweeter, and Fry’s and custom-channel distribution through national distributor alliance AVAD. Polk’s net sales for the 12 months ending June 30 were about $86 million. Directed’s sales, if Polk’s volume were included, would have been about $435 million for the same period.

The Definitive and Polk brands, Minarik added, are “beautifully positioned” to take advantage of the growing trends by retailers to “go back to basics” in demonstrating component audio systems for use with new high-definition display technologies. The component-speaker market has resumed growth, he added.

The recent spate of speaker-company acquisitions is less a reflection of dire times in component audio and more a reflection of founders wanting to tap into the wealth they built up in companies that they founded as long ago as the 1970s, Minarik said. Cases in point include API founder Howard Heiber and Polk’s founders. Likewise, Boston Acoustics was founded in the late 70s. Sandy Gross and Don Givogue founded Definitive in 1990.

In a quirk of fate, the acquisition brings Definitive founder Gross back in close contact with Polk management. Gross was a founding partner of Polk and top Polk marketing executive until about 1990. Gross, Matt Polk, Klopfer, Polk president Jim Herd, and Givogue will sit on Directed’s home audio advisory board, which Minarik is setting up to tap their combined expertise.

In another quirk, Polk’s acquisition will bring XM Satellite Radio into Directed’s product mix. Polk markets a component XM tuner and an XM-ready one-piece set-top audio/video system.

With the acquisition, Polk car audio speakers will join Directed’s other car audio brands. They include Orion, Precision Power, and a/d/s, all acquisitions. Other Directed car audio brands are Extreme, West Coast Custom, and Directed. The a/d/s home-speaker brand is inactive.

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