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Waiting on Details

Sound United's Onkyo Audio Buy Could Leave Only 3 Major AVR Vendors Remaining

With Sound United in a nonbinding term sheet agreement to buy Onkyo’s consumer audio division, announced Tuesday, CE buying group executives we canvassed Wednesday were reluctant to speculate what a five-brand AV receiver (AVR) vendor would mean for their retailer members.

Richard Glikes, president of the Azione Group, said if the deal goes through, it creates a category with three major players: Sound United, Sony and Yamaha. Noting the purchase would give Sound United a “very nice offering” with the Onkyo, Pioneer, Marantz, Denon and Integra lines, Glikes said owning all five brands could allow the audio company to “stratify and target a brand by dealer channel.” Sound United could extend the strategy it has taken with the Denon and Marantz lines, being “even more stiletto-like” in their approach to “who markets what,” by assigning one brand to the custom-only channel, another to dealers who sell retail and custom installations and another to mass-merchant retail accounts.

Of the five AV receiver brands, Azione only has Integra as a vendor member. Commenting on whether dealers could be pressured to take on more of the Sound United AVR portfolio, Glikes said: “I’d love to be pressured.” On whether the deal would be good or bad for the industry, Glikes said, “I'd like to see how things play out.”

Glikes recalled industry reaction when Marantz shifted to Avad distribution from the specialty channel: “Everybody was yelling and screaming,” but a month later it hadn’t really affected business, he said. A similar outcry ensued when Bowers & Wilkins started selling its high-end speakers through Best Buy’s Magnolia Home Theater stores. “Everybody went crazy,” he said, “but the next thing you know? The independents’ business went up,” he said. “I’m not a knee-jerk individual; I’ll wait it out.” It could turn out that Azione takes on Marantz rather than Integra depending on how the brands are positioned, he said.

ProSource CEO David Workman emailed us that it’s “real early at this point.” With not much detail available, Workman didn’t want to speculate “until I find out more at their dealer conference next week.” ProSource's AV receiver brands include Anthem, Denon, Integra, Marantz, Sony and Yamaha. Competitors Sony and Yamaha didn't immediately comment.

Similarly, Home Technology Specialists of America Executive Director Jon Robbins emailed us that Integra, the one brand relevant to the deal in HTSA’s stable, hasn’t been able to provide many details so far: “I just don’t have enough knowledge about the ‘end game’ to even render an opinion.”

The preliminary agreement between Onkyo and Sound United enables both companies to “quickly proceed with negotiations of definitive terms and agreements,” said Sound United in its near-midnight news release Tuesday. Kevin Duffy, Sound United CEO, would retain that title for the combined businesses, it said. The transaction “reflects a continued focus by Sound United to meet consumer demand for the best-sounding and most technologically advanced audio products available,” said the company. The expanded brand portfolio will allow Sound United to better serve consumers with premium products tailored to their specific needs, it said.

Sound United Communications Manager Paul Wilkie described the term sheet agreement as the precursor to the final acquisition agreement that will lay out terms. “We’ve essentially entered into escrow with the Onkyo Corporation,” Wilkie emailed us Wednesday, saying timing of the final deal “will likely fluctuate as we iron out the details.” The company hopes to have more information next week at its first North America Dealers Conference in New Orleans. The deal is subject to approvals from regulators and Onkyo Corp. shareholders; the company’s annual meeting is expected to be held on or about June 26.

In the release, Duffy said Sound United is “thrilled by the opportunity to add the venerable Onkyo and Pioneer brands to our portfolio.” The company didn’t respond to our questions Wednesday, citing the pending status of the deal. Duffy said the combined businesses will bring “unrivaled innovation and sound performance to our consumers and channel partners.” After the deal closes, it will work with Onkyo’s consumer audio division “to ensure a seamless transition into the Sound United family so that all employees, customers and channel partners benefit from the enhanced breadth and depth of the new organization,” Duffy said.

Other categories in Onkyo’s consumer audio division include hi-fi equipment, mini systems, smart speakers, turntables, sound bars, home theater systems and optical disc players. Onkyo Corp. will retain the rights to the Pioneer and Onkyo brands for the Digital Life and Embedded Audio businesses, Sound United said. As part of the planned purchase, Sound United will acquire all worldwide third-party distribution agreements under which the premium audio products are currently sold.

Investing in additional brands will enable Sound United to “better innovate across product categories, feature sets, technology partners, and consumer targets,” said the Vista, California-based company, spotlighting its presence in wireless, voice-enabled speaker and sound bar categories. The expanded scope will offer “manufacturing efficiencies, expedited development cycles and a combined business better positioned to invest in the future of the premium audio category,” it said.