Klipsch Audio Executing a Global Strategy
Private equity funds and venture capital firms have invested in several of the vendor groups written about in this report, but with VantagePoint Venture Partners, Klipsch Audio Inc. possesses a high-powered minority shareholder with vast information resources, and the companies work together closely to execute a mutually agreed-upon strategy.
VantagePoint first began pursuing an investment strategy for the digital media market in 2002. It "incubated" a portfolio company called Aurora Inc., founded by John Carter, former chief engineer of Bose Corp., and Tom Jacoby, former CEO of Harman Consumer Group, to help VantagePoint refine its strategy and select a company in which to invest.
Aurora and VantagePoint selected Klipsch after a year-long process. "We spent many months looking at many companies, then selected Klipsch and worked with Klipsch very proactively," says Cynthia Ringo, managing director and co-head of the firm's Communications & Systems Practice. According to Ringo, VantagePoint saw opportunity in consumer audio created by the shift from analog to digital, video's market pull of audio, audio's increasing portability and the related and rapid growth in custom installation.
Klipsch announced the VantagePoint stake on February 15, the same day it announced its acquisition of privately-held Danish speaker company Jamo. Ringo and VantagePoint Vice President Rich Davis now sit on the Klipsch board, while Carter and Jacoby are now on the Klipsch payroll as chief technology officer and chief development officer/vice chairman, respectively. With the Jamo acquisition, Paul Jacobs is now president of Klipsch LLC (dba Klipsch Audio Technologies) and also Jamo Acquisition, the subsidiary that holds Jamo's U.S. and international businesses.
Jacobs says that when VantagePoint first approached Klipsch, the venture capital firm's strategy was already largely in sync with that of Klipsch. Both saw the opportunity for a multi-branded consumer audio company with good, diversified distribution around the world.
Given the retail consolidation in North America and a decline in some of the traditional loudspeaker business, Jacobs says, "we felt strongly that evolving more towards a technology-focused, end user-friendly product company was the direction we should go." VantagePoint also saw an audio market strategy "that could include a multi-branded approach to having good, diversified distribution around the world."
When Klipsch began its conversations with VantagePoint, about 15 percent of its business came from international markets. "Our target was about 50 percent," says Jacobs, adding that with the acquisition of Jamo and Klipsch's own growth, "we've achieved our target."
In the U.S., Klipsch distribution includes A/V specialty, custom installer, commercial contractor, professional cinema, mass merchant (Klipsch Synergy) and direct sales through klipsch.com. Klipsch, since September 2004, is exclusive global distributor for Oxmoor Corp.'s ZON Whole House Digital Audio products; ZON is available only in the Klipsch specialty retail and residential contracting channels.
Klipsch Audio Inc.'s near-term goals start "with being a multi-branded, global company with significant growth aspirations, even for this year," says Jacobs. "We're making sure we have the right people in the right positions, and the structure organizationally to support the growth." The company's current drive has "a lot to do with organization and the balance of distribution and products," he says.
Long term, Jacobs says Klipsch will expand its technology play. "We'll be watching where the markets are going, looking at the true technology leaders driving the trends, and develop the products, concepts, marketing and channels of distribution that plug us into leveraging these new technologies as they hit the marketplace."
Jacobs says the goal is "not to disturb the customer-facing portion" of its brands and to maintain separate sales, management and leadership for Jamo and Klipsch. The company rather seeks efficiencies in logistics, warehousing, financing/accounting and manufacturing.
"We want to grow, we want to expand categories, we want to grow in all the channels," Jacobs says. "Starting later this year, as we reformulate the organization and have learned to partner well with the VantagePoint team, [dealers] should really see a stronger business partner overall—whether it's Jamo, Klipsch or ZON."
Asked if Klipsch wants to go public, Jacobs replies: "There's no stated objective to hold an IPO. Obviously, when you work with an equity fund, there's got to be an exit strategy at some point, but our goals and objectives are to grow this group of brands globally, hit our benchmark financial targets and achieve a healthy, diversified company with brands represented around the world."