Paradigm Claims Sonic Frontiers Deal Will Help Entire Industry
In a telephone conversation, VanderMarel took exception to our mention in a previous story of the Sonic Frontiers purchase as something that was achieved at a "fire-sale price." He emphasized that the asset purchase, at "several times the value of the McCormack/Conrad-Johnson deal," was no frivolous undertaking. "We needed entry into the High End, and Sonic Frontiers will provide that for us. They needed the resources to take them out of receivership and up to another level, and we are providing that for them. It was a good fit," VanderMarel said, noting that receivership, especially in the case of Sonic Frontiers, didn't mean the company had reached "zero value," as one source had mentioned.
"On the contrary," he said. "Sonic Frontiers had considerable value---why else would we have bought it [from the bank]?---but the truth is that its financial position had deteriorated to the point where the company was no longer viable." Prolonged negotiations with the Lenbrook Group, as previously mentioned, did have a negative effect on Sonic Frontier's business---an effect that ultimately worked in Paradigm's favor when SF went into receivership.
Creating a new company from the remains of the old offers the opportunity to build on a solid brand name rather than attempting to establish a new one, and liquidating the old company frees the new one from a burden of debt that might hinder its development, VanderMarel noted. Assuming SF's substantial debt would have amounted to "strangling the new entity before it starts," he said. Standard practice now in the acquisition of struggling businesses is to put them into bankruptcy in order to clear the backlog of debt.
Although many Sonic Frontiers vendors are out of pocket hundreds of thousands of dollars, VanderMarel believes Paradigm's takeover and re-launch of the name will give everyone concerned the opportunity "to make back what they lost by dealing with a new company, rather than simply writing off the debt as they would have done if Sonic Frontiers had vanished completely."
As we reported, Sonic Frontiers, Inc., is gone---along with its debt, something VanderMarel characterized as "the downside of the situation" while emphasizing "the upside---that the new entity exists to do business with these vendors."
Sonic Frontiers founders Chris Jensen and Chris Johnson are not "Paradigm employees," but minor shareholders in Sonic Frontiers International, as are other members of the Paradigm group, VanderMarel said. He makes no attempt to gloss over the fact that the new company is being bankrolled by Paradigm, warning that "at some point it must become viable."
Toward that end, both the Anthem and Sonic Frontiers lines will be expanded to include multichannel amplifiers for the growing home-theater market, as well as DVD players "when standards issues are finally resolved." Anthem products, including an integrated amplifier, will "head toward more popular price points" for a broad-based line of electronics "suitable for a great number of dealers. Sonic Frontiers products will receive more limited distribution," both through the present network of dealers, and through others, who will be selectively added.
"We strongly believe in supporting specialty retailers," VanderMarel said, noting that all products made by Sonic Frontiers, Inc. will continue to be made and marketed by Sonic Frontiers International. "We will stick with these products until the market for two-channel audio disappears. If it does---in five or six years---we will have to reconsider."
Regarding the grumbling that has taken place in the industry recently over this situation, VanderMarel stated that "It's time to get past the whole situation and move on to the future. Our intention is to make this work for everyone."