Voxx International Corp.'s $166 million buyout of Indianapolis-
based speaker maker Klipsch Group two years ago so far hasn't
generated the excitement on Wall Street that Voxx wants.
Hauppage, N.Y.-based Voxx made the acquisition as part of its strategy to shift from commodity electronics into higher-margin businesses.
Voxx's stock price is up from $8.12 to about $9.75 since the deal closed in March 2011. But company executives hoped for an even bigger pop in the stock price, given Klipsch's strong performance.
"We think our stock is highly undervalued," Voxx President Pat Lavelle said. "When you look at our performance, we've generated good income, good free cash flow."
Sales at 260-employee Klipsch are expected to reach $180 million in the 2013 fiscal year, which ends Feb. 28, Klipsch CEO Paul Jacobs said. That's 11 percent higher than in fiscal 2010 but 20 percent below its peak before the recession.
Voxx's stock rose as high as $14.56 a share in February 2012 before a costly lawsuit settlement and expenses from another acquisition turned investors skittish, said Scott Tilghman, a senior analyst in B. Riley & Co.'s Boston office.
"On top of that, since this company is not very visible in the marketplace, their communication strategy isn't quite as refined," Tilghman said.
Tilghman is one of just two analysts following Voxx. But that's a step up from the zero it had when it bought Klipsch.
Voxx has a market value of just $216 million, making it small by public company standards. Because of the lack of attention from Wall Street, investors took several months to jump on board after the Klipsch purchase was announced in January 2011.
"Even though the Klipsch deal looked to have been attractive, it wasn't something a lot of people were playing," Tilghman said. "It was a classic case of a low-cap stock flying under the radar."
Shares hovered in the $7 and $8 range for most of 2011 before marching higher in early 2012.
Then, Voxx in May 2012 finished its first quarter with a $4.7 million loss.
During the previous quarter, Voxx had paid out $8.4 million to settle a patent lawsuit and recorded $2.7 million in expenses related to the acquisition of German automotive communications company Hirschmann.
That was a big hit for Voxx, which had earned $25.6 million in its previous fiscal year.
Tilghman said the setbacks came at a time investors already were fretting about the growing financial crisis in Europe and the looming "fiscal cliff" in the United States.
Voxx's share price tumbled through 2012 before bottoming out below $6 in November.
The company is expected to report almost $850 million in sales for its 2013 fiscal year, up 20 percent from last year's $707 million, Lavelle said.
Klipsch has helped Voxx widen its gross margins to 29 percent, a huge improvement from a few years ago, when they were as small as 8 percent.
'Retool and Reinvent'
Voxx found Klipsch's low-volume, high-margin speaker business an alluring acquisition target as it sought to shift away from low- margin commodity products.
After deciding it was too small to compete in the booming cell- phone manufacturing business, Voxx in 2005 dissolved a partnership with Toshiba and shed its mobile technology business.
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