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D&M Holdings Plans More Buys, Outlines Forecasts

D&M Holdings plans to acquire additional brands targeted to the custom-install and specialty A/V channels, said Merle Gilmore, D&M’s chairman and CEO.

The company also said it expects worldwide sales of its recently acquired Denon and Marantz brands to increase by 5.6 percent to $636 million in the fiscal year ending March 2003. Operating profits are forecast to rise 52 percent to $27 million, with operating margins rising to 4.2 percent from the previous year’s 3 percent, Gilmore told TWICE.

The company has targeted A/V electronics brands, speaker companies and home-control companies as potential acquisitions, said Gilmore, who is also an industrial partner in Ripplewood Holdings, D&M’s majority shareholder. “We are actively looking at new acquisitions right now.” The company doesn’t plan to acquire brands with distribution in national chains or electronics/appliance stores. “Our channels are custom and specialty A/V,” he said.

While it seeks new acquisitions, D&M will divest two money-losing non-core businesses run by Marantz. One makes earth-station receivers for cable-network head ends, and the other makes wireless-data transceivers, said the former Motorola telecom executive.

The divestiture is part of a plan that included the sale of two of three factories in Japan to increase operating margins. Sixty percent of the brands’ products are outsourced, he noted.

D&M has also begun to combine purchasing, logistics and core R&D operations in Japan and to narrow its OEM relationships to go deeper with fewer suppliers, he said. “Engineering, sales and marketing will be untouched,” he stressed. “We recognize the value of the companies is in the brand, especially in product management and customer-facing activities.”

In the United States, working groups are studying ways to gain efficiencies, possibly including the merger of common back-office functions such as order entry, credit, warehousing and service operations, Gilmore said. A final decision will be made by Dec. 1, but whatever the decisions, the two brands will continue to have their own sales and marketing staffs and reps, he said.

“Both brands can get a lot more profitable” as a result of the efficiencies, Gilmore said. The brands “largely made money in the past decade— a little, not a lot,” he said. Marantz was in the red during the 18 months before D&M took over because Marantz in early 2001 bought the Philips-owned sales and marketing companies that marketed Marantz products in the U.S. and Europe. Marantz also bought worldwide rights to the Marantz name from Philips, then Marantz’s majority shareholder.

Despite their premium positions, the two brands are complementary in the U.S., Gilmore said. Of the 1,500 storefronts selling Denon and Marantz products, only 50 sell both brands. “Denon is strong with regional specialists, and Marantz is strong with independent specialists,” he said.

Before D&M began hunting for efficiencies, the two companies employed 1,600 people. By March 2003, that number will decline by 200, including the people employed by the two sold-off factories. By March 2005, the employee roster will decline to 1,200.