Logitech to Acquire Ultimate Ears

On August 14, Logitech International announced that it intended to acquire privately held Ultimate Ears for $34 million in cash. "Ultimate Ears is a perfect fit for Logitech and our audio business," said Gerald P. Quindlen, Logitech's president and CEO. "Since its inception, Ultimate Ears has been driven by innovation, close ties to its customers, and the desire to enable an immersive audio experience. Logitech's success has been built on using a deep understanding of our customers to create products that let people immerse themselves in their pursuits."

To people familiar with Ultimate Ears' back story, the fact that the company that had so rigorously hewed to its roots as a plucky independent sold itself to a multinational public company came as a surprise, but insiders insist it's a good deal all the way around.

If you want the complete Ultimate Ears back story (and it's a good'un), read Patrick J. Sauer's June 2007 Fortune article. Here are the highlights: Ultimate Ears was founded in 1995, when Jerry Harvey, Van Halen's primary audio engineer, produced a pair of in-ear monitors for drummer Alex Van Halen and, ultimately, the rest of the band. When the opening act, Skid Row, offered him $3000 for six pairs for their own use, Harvey reckoned he might have a salable product and founded a company with his then wife, Mindy. Mindy ran the business end of things back home in Las Vegas and Jerry continued touring with bands and promoting UE monitors.

The Harveys contracted with Westone to manufacture the monitors for them, relying on Westone's coast-to-coast network of audiologists to cast the custom ear molds they required and Westone to assemble the monitors. In 2001, Westone and Harvey had a break-up over intellectual property issues. Harvey claimed the company was taking credit for his designs, but admitted he had no patent back-ups to that claim. (He later remedied that.) He went to hearing-aid school and found what he was looking for, in the form of teacher Chomphorn "Noy" Soudaly, whom he filched at double his salary. The two then spent "100 days of hell" in R&D on new products as well as actual production of existing orders.

Ultimate Ears survived and by 2003 it employed five technicians and did $5 million in business. That was also the year Harvey discovered a nifty little device called the iPod and recognized that he could sell a gazillion more in-ear monitors if he could design a more affordable line of products. The UE-5c ($550) debuted in January 2004. The problem was that the Harveys needed to finance that growth with outside capital and through a "guy who knew a guy who knew a guy," they met Bob Allison, owner and CEO of the investment holding company Innovate Partners. It was a good fit. Allison convinced the Harveys to create the Super.fi line, which brought the price of entry to an Ultimate Ears 'phone to $250. That put UE on track for a $10 million 2006. A deal co-branding less-expensive monitors with Altec Lansing has the potential for even greater sales growth.

Even successful companies don't always survive such rapid growth, so canny industry observers think the Logitech acquisition came at precisely the right time. Jerry Harvey "retired" from UE after the launch of the UE-11 in 2007. Logitech's acquisition cashes out Mindy Harvey; Bob Allison stays with the company as CEO. Logitech pledges that the company staff—both technical and management—will continue to fulfill their current roles. The big change for Ultimate Ears? Logitech says that the UE will benefit from economies of scale and its international marketing know-how.