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Klipsch Buys API To Expand Specialty A/V Penetration

8/16/2006 02:40:00 PM Eastern

Indianapolis – The Klipsch Group acquired Canada’s Audio Products International (API) to increase its penetration of specialty A/V and custom-installation distribution channels in the U.S. and Canada, Klipsch Group chairman Fred Klipsch told TWICE.

The financial details of the sale were not disclosed.

Early last year, Klipsch acquired Danish speaker/electronics maker Jamo International, primarily to build its presence in overseas markets, the company said at the time. API’s biggest market, on the other hand, is the United States, followed by Canada. In both countries, API sells primarily through specialty A/V retailers, with the majority of its sales in cabinet speakers rather than in architectural speakers.

The addition of API’s Mirage, Energy and Athena speaker brands boosts the Klipsch Group’s dollar volume by about 20 percent, Klipsch said without being more specific. Excluding one-time charges related to API’s “transitioning from internal manufacturing to outsourcing in China” during the past two years, API is posting an operating profit, he added.

Although Klipsch brand speakers are the market share leaders for cabinet speakers in specialty A/V channels, Klipsch acquired API because it is a “good, solid company” with “a lot of upward potential,” Klipsch said. In the short term, API margins and profitability can increase by leveraging Klipsch Group resources, including logistics, but longer term, “with our strong retail relationships, we can accelerate API’s sales,” he said.

Although the Klipsch and API brands already share some of the same retail outlets with speakers in similar price ranges, the brands use “different technologies that create different sound,” in turn appealing to consumers with “different attitudes” about the sound they prefer, Klipsch said of the logic of adding API’s stable of brands to Klipsch’s.

Klipsch is assuming existing API retail distribution and will “continue solid support of that distribution,” but “over time, Klipsch will always evaluate and plan solid moves for all brands,” a spokesman added. The additional brands provide “more flexibility” in distribution channels, Klipsch noted.

Despite the acquisition, API’s marketing, engineering, and product development will continue to operate independently of Jamo and Klipsch Audio Technologies, which markets Klipsch-brand speakers and other products. API will also continue to control purchasing and logistics but will avail itself of Klipsch Group resources, Klipsch said. Only API’s sales functions, including its sales team, will be transferred to the Klipsch Group.

In the future, as Klipsch and API contracts with Chinese factories come up for renewal, the Klipsch Group wants to consolidate suppliers to work with fewer manufacturers, Klipsch added.

API owner Howard Heiber also sees new opportunities for the API brands. “With their knowledge and resources, we knew it would be a good fit,” he told TWICE. “It will give us access to some resources we didn’t have, including engineering resources, QC resources in China, and European and China distribution.”

Heiber, who is leaving API after founding it in November 1972, said he was not actively shopping the company, although during the past few years, “multiple” companies knocked on his door, including CE companies and merchant banks. Heiber said he seriously entertained only Klipsch’s overtures because “I heard nothing but good things about Fred and his company.”

Heiber said he doesn’t plan to retire but doesn’t know yet whether he will stay in the CE business.

The Klipsch brand is already among the top two or three brands in cabinet speakers sold at retail in all distribution channels, and brand sales have been growing 18 percent to 20 percent per year for the past seven years, Klipsch noted. Jamo sales have grown almost 10 percent in the first full fiscal year, ending June 30, under Klipsch ownership, he added.

Klipsch has also been selling a Klipsch-branded Synergy series of cabinet speakers exclusively through Best Buy since 2004.