Happy Newlyweds: Why Harman’s Acquisition of AMX Makes Sense

Harman’s focus on audio in the commercial market is the perfect complement to AMX’s video and automation systems.

Julie Jacobson

Skaf notes that the Duchossois family is an “honorable, great family” interested in doing not only the profitable thing for themselves, but the right thing for AMX.

“It’s not only the right timing, but the right partner,” Skaf says. “This is a fantastic marriage between two groups. You can truly say that one plus one equals three.”

In a press release announcing the acquisition last week, Fealy, who is chairman of AMX, noted:

Harman is a world-class company, and this transaction will provide additional opportunities to grow the AMX business. The sale to Harman fulfills one of our fundamental objectives, which was to position this business with a leading entity that will take AMX to an even higher level of performance and success.

Harman owns the iconic audio brands – popular in both consumer and commercial markets—Harman Kardon, Infinity, JBL, Lexicon and Mark Levinson, Revel and dbx, as well as the headphone maker AKG.

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Seeking Alpha reports: On the back of the very strong operational performance and the latest deal, shares of Harman have risen to levels of $108 per share very close to all-time highs of $115 per share.

At current levels, the market values the company at $7.3 billion which includes a net cash position of around $290 million as released before. Given the $365 million price tag, Harman will operate with an expected flat net cash position at the moment.

With earnings anticipated to come in at roughly $250 million on a GAAP basis this year, shares trade at roughly 29 times annual earnings.

In addition, Harman owns Martin, a lighting controls giant that serves the architectural, commercial and live entertainment markets.

All of these products complement nicely the AMX portfolio, which focuses on video distribution and integrated controls (although AMX did buy audio distribution and switching companies AutoPatch and Matrix Audio in 2006 and certainly does a strong multiroom audio business).

“What Harman is to audio, we are to control and video,” Skaf says.

In the press release issued by Harman and AMX last week, Harman president and CEO Dinesh C. Paliwal stated:

Harman is the leader in smart connectivity. Our vision is to extend our reach beyond the car into the enterprise, where we already have a substantial audio presence. AMX is the global technology leader in enterprise control and automation as well as audio and video switching and distribution. With the addition of AMX, Harman will be uniquely positioned to provide complete audio, video, lighting and automation solutions to our customers globally.

Sure, it’s a bunch of optimistic press-releasy stuff, but I for one am a believer.

While there is a nice overlap in the channels each company serves, there is little duplication but great opportunities in their product lines.

“They sell over $1 billion in commercial gear – everything from microphones to amps to Martin lighting,” Skaf says. “All of those elements are all controllable. We and they see that as valuable.”

In all, I think the marriage makes perfect sense.