CHATSWORTH, Calif.-Clifford Electronics announced yesterday that it is selling all assets to Directed Electronics Inc. (DEI) for a price to be announced later, and that Clifford has filed for Chapter 11 bankruptcy with the U.S. Central District of California Bankruptcy Court.
The merger between Clifford and DEI is expected to occur within 45 days, pending federal approval, creating the largest company in the car security market.
DEI will retain the Clifford and Avital brands and products, said DEI president and CEO, Darrell Issa, noting that Clifford products will retain "a separate identity" from DEI brands.
William Franklin said he will continue as president of Clifford until the merger is completed. Clifford filed for Chapter 11 bankruptcy, he said, because, "We were out of covenant with some of our loan commitments, and while we had made significant progress since last year, the banks were not willing to wait for the completed turnaround."
Franklin said that Clifford owed bank and trade debt of approximately $35 million, while the sale of its assets amounted to less than that sum. He said the receivership was unfortunate, in that Clifford had been profitable since August.
"It's ironic that the day after I got the results that we had had the best month in our history, I get the notice that we have filed for bankruptcy. It's a tough industry, and it will get tougher. The new features coming out don't have the market reward that they had in the early 90s," Franklin said.
Both Issa and Franklin, praised the merger for the synergy it will create between both companies. "Its one of the few situations where you can really see some synergy in a merger. Clifford has its design and development expertise and DEI has its marketing and operational efficiencies. Ultimately the beneficiaries will be both the consumers and the dealers," Franklin said.
Issa said, "Clifford and Directed have been the two market leaders in technology and size, so when you combine them, the synergies are just tremendous. The portfolio of each of our technology patents separately is larger than the next five players."
Clifford said its financial troubles intensified following its leveraged recapitalization in 1997. "Clifford assumed a lot of debt at the time, and immediately after, we encountered problems with the international market. At one time half our sales were international. But with problems in the Russian, Malaysian and Indonesian markets, our sales in the Pacific Rim and Eastern Europe virtually disappeared. With the loss of those sales, we weren't able to service our existing debt," Franklin said.
In January, an investment firm called Trivest, based in Miami, Fla., acquired DEI. Issa said at the time that the new financing would allow DEI to acquire other companies. He said that the Clifford merger "is the first of what we expect to be several 12 volt acquisitions."