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What Does VTech’s Acquisition Of LeapFrog Mean For The Industry?

VTech announced this month it intends to acquire rival toymaker LeapFrog Enterprises for approximately $72 million.

The deal, which is expected to close by the end of March, has been approved by both boards of directors.

“The acquisition will allow us to offer the broadest portfolio of products that enhances the education and development of children across the world, while bringing them fun and joy,” said Allan Wong, chairman and group CEO of VTech Holdings Limited, in a statement.

The company declined to answer any questions.

The two companies have continuously jockeyed for position in the tech toy category. Both companies manufacture tablets and gaming devices for children, a segment facing stiff competition as tablet prices have plummeted and free apps flourished.

Although the overall toy category grew 7 percent in 2015 vs. 2014, reaching $19.45 billion, the youth electronics segment fell 5 percent in U.S. dollar sales, to $600 million, according to The NPD Group. Other than arts and crafts, it was the only toy segment tracked by NPD that declined for the year.

Matthew Hudak, toys and games analyst for research firm Euromonitor International, cited the difficult children’s tablet market as a likely motivation behind the deal. “The competition from typical consumer electronics tablets has become too much,” he told TWICE, pointing out that consumers can purchase an Amazon Fire tablet for just $50. “There are so many cheap options out there that it makes it difficult for these children’s tablets — all it came down was low price.”

LeapFrog’s top-of-the-line children’s tablet, the Epic, has a $139 suggested retail, while VTech’s InnoTab Max is $109. Despite these pricing issues, the LeapFrog name still carries some weight as an educational brand, Hudak said, and VTech could potentially use this name in other capacities, such as in app stores or via software.

“Moving forward, they can try to consolidate to something that works a little better. [The market] is so price-oriented that you need to have a cheap thing parents can buy. The only reason parents would buy a children’s tablet is because it comes preloaded [with content] and has safe browsing features, but they’re only going to pay so much for that convenience,” he noted.

VTech garnered more than a few negative headlines in November when the database of its Learning Lodge and Kid Connect app and software systems was hacked, affecting more than 4.9 million parent accounts and 6.4 million child accounts. Such account information as names, emails addresses, birthdates, mailing addresses and IP addresses were compromised, as were photos, voice messages and chat records sent from children to their parents.

The company sent an email to users earlier this month that said portions of the system were once again operating.

King F. Pang, VTech Holdings group president, said the company had taken measures to strengthen its data protection with the help of “one of the world’s leading cyber security teams.”

Gaining the LeapFrog name could be another salve for this VTech black eye. “The LeapPad brand name has a little more [strength] than the InnoTab,” said Hudak. “That’s a positive for sure.”