Following a two-year hiatus, Tweeter Home Entertainment Group is back on the acquisition track, announcing plans to buy NOW! AudioVideo, a $21 million A/V chain — and a fellow member of the Progressive Retailers Organization (PRO Group) this summer for just under $4 million.
According to Tweeter executives and PRO Group executive director Roger Heuberger, the buyout will provide an exit strategy for NOW! principals Ann and Richard Shachtman, who will retire from the business and focus on their new role as grandparents.
Tweeter, in turn, will beef up its retail and in-home installer base in North Carolina and Tennessee with NOW!'s six stores, which share a similar mix of core brands with its soon-to-be parent. Tweeter first established a foothold in North Carolina with the June 2001 acquisition of the three-store Audio Video Systems chain in Charlotte.
In a conference call, Tweeter CFO Joe McGuire said the company "feels good enough on the progress of our various initiatives" to resume its acquisition posture, and said the timing of the deal, which is set to close around July 1, was based on availability.
He said Tweeter also "feels very good about the acquisition economics." The price tag "compares favorably to historical acquisitions," he noted, and the purchase, which won't impact earnings this year, is expected to enhance Tweeter's sales and gross margins in fiscal 2005.
McGuire said NOW!'s stores, which range from 8,000 square feet to 12,000 square feet in size, are located in "a very high growth market," and he described the 30-year-old business as profitable and well-positioned with consumers.
President/CEO Jeff Stone added that the acquisition will be similar to its early buyouts of Bryn Mawr Stereo & Video and Home Entertainment, both small, family-run PRO Group dealers that were eventually absorbed under the Tweeter mantle. That approach stands in contrast to its acquisitions of former PRO Group members Sound Advice and HiFi Buys, both larger chains that have retained their trade names within their respective Florida and Atlanta markets. A Tweeter spokesperson said the company would analyze the re-branding of NOW! over the next year.
Based on conversations with the Shachtmans and store managers held during a three-store visit yesterday, Stone said he expects NOW! to benefit immediately from a cash infusion that will beef up its inventory position and boost sales, while its gross margins should improve thanks to Tweeter's superior buying power and, ostensibly, supply-chain management.
PRO Group's Heuberger described the acquisition as "a little bit odd for the group — we thought the mergers were over," but underscored that NOW!'s $21 million in annual sales will remain within the buying organization, as will NOW! itself, though only through year's end. He agreed that the anticipated increase in in-stocks will have a "huge" impact on sales for the chain, and that the acquisition should "turn out well" for NOW!'s staff, which he described as "terrific."
The eventual integration of NOW! into Tweeter, plus the shuttering of PRO Group member BrandsMart Midwest (see TWICE, April 5, p. 4), will bring the group's dealer roster down to 16, one member shy of its all-time high of 17 retailers, Heuberger said.