Chinese Speaker Maker Edifier Purchases Famous Electrostatic Headphone Maker Stax
Stax, a company of about a dozen employees, which is easily the best known, most respected, and virtually only maker of electrostatic headphones, was purchased by Chinese speaker maker, Edifier, which is a roughly $700 million company.
From TMCnet.com here:
SHENZHEN, Dec 09, 2011 (SinoCast Daily Business Beat via COMTEX) -- Edifier Technology Co., Ltd. (SZSE: 002351) on December 9 announced the acquisition of a 100% equity in Japan-based STAX in cash.
The transaction value is JPY 120 million, i.e. CNY 9.7693 million, at the exchange rate of JPY 100 for CNY 8.1411 on December 6.
In U.S. dollars thats $1,546,989.82. Ugh ... Stax didn't get much for it. Both companies have produced press releases on the purchase, and the headphone enthusiast community is abuzz. I decided to spend a couple of days reading (Google translate is a miracle ... and a menace) the press releases, press coverage, and enthusiast forums ... made a few phone calls, too. Here's the story as best I can figure it.
The Google translation of their official Notice of Aquisition of Assets covers many details of the deal. Eight board members voted unanimously on Dec 7, 2011 to effect the purchase with cash on hand. It says the purchase price was 1.2B Yen. This is incorrect, one forum poster said Google translate was misreading the original document. The cited conversion in the document to 9.7693 million yuan is correct, however.
The report says an outside company did the valuation of Stax based on a due diligence report by another firm using the Discount Cash Flow method of corporate valuation. This method delivered a valuation of between 85 and 126 million Yen. The report states the Stax deal goes through at the high end with 120 million Yen because of their "technical advantages."
The stock will be purchased from Mr. Yang made Meguro, who currently holds 100% of Stax stock. The actual transfer of funds will occur on March 31, 2012.
Stax abbreviated balance sheets for the last four years were included in the Notice of Acquisition of Assets document. I've reconstructed it using US dollars, and added some rows to calculate some financial ratios:
I'm no financial analyst, but the company looks small but viable to me. I found the 2008 ratios (bottom four rows) to be quite close to industry averages. The poor results in 2010 are stated to have been the result of significant and expensive product development effort ... the SR-009, no doubt. 2011 results are much better --- the SR-009 introduction was a little rough, but, in the end, the product was very well received, and many were sold. I can say from first hand experience that the SR-009 is a spectacular headphone and it's nice to see it did well for Stax.
You can see, however, that developing the SR-009 did put Stax at significant risk. Technical product development is very expensive, and betting the company every time you develop a product can lead to lots of sleepless nights. I think this is why Stax's selling price was so low: the way forward with expensive product development and a boutique manufacturer's small income stream meant new products would be few and far between, and return on investment slim.
Risks, Benefits, and Intentions
The notice goes on to highlight Edifier's intentions, and some of the advantages and risks to Edifier with the purchase.
Edifier states the main purpose of the investment is to obtain a superior position in the headphone market. Edifier does have a fairly large line of headphone products, but they do appear to occupy the lower end of the price spectrum. This move certainly has the potential to give them a much higher profile in the headphone market.
The notice states that Edifier will use its manufacturing capacity to reduce manufacturing costs and to bring product to market at more broadly acceptable prices. This statement is contradicted in a subsequent press release from Edifier in the fifth paragraph here, where it is stated that the operational team at Stax and the manufacture of classic Stax product will be 100% retained in Japan. Edifier states it will bolster Stax product development with additional R&D and industrial design assistance from China.
Edifier also claims in the notice that the acquisition will allow it to develop Edifier-branded portable electrostatic headphones at lower price points than Stax currently inhabits.
The translation under the heading of "Technical Risk" is difficult to interpret, but it appears to say that electrostatic headphones may be vulnerable to competition from other types of headphone driver technology, which might be able to deliver the same quality listening experience at a lower price that the electrostatic technology might not be able to meet. And if so, Stax might be eliminated. (I'd love for some native speakers to have a go at translating that particular paragraph and post your translation in the comments below.)
Under the title "Market Risk," it states that though the company clearly shows technical leadership in the high-end electrostatic headphone market, the high price of current Stax product is keeping its product out of mass market channels.
The "Risk Management" section states that this is the first time Edifier has bought a Japanese company and that the best stance might be to let Stax manage its own risks, and stand the "test of time."
There was, of course, an almost instantaneous and very vocal reaction from the enthusiast community. Let's take a look at some of the comments.