March 20, 2021 | In a move that surprised both industry
observers and participants alike, Rimage Corporation has acquired
rival CD-R duplicator manufacturer Cedar Technologies. Rimage
is best known for its thermal transfer CD printer and Producer
line of duplicators and custom disc production systems while Cedar
is noted for its smaller-scale CD-R Desktop Publisher product.
Both companies are based in the greater metropolitan area of Minneapolis,
It is reported that the deal involved the transfer of 331,664
Rimage common shares in exchange for all of Cedar's stock. Rimage
is also obligated to issue an additional 268,028 shares to account
for all of Cedar's outstanding stock options and warrants. At
the time of the announcement, the transaction was worth roughly
$7 million with an additional $5.6 million for further obligations.
Although manufacturing will be consolidated at the Rimage manufacturing
facility in Minnesota, separate identities will be maintained.
Cedar will operate as a wholly owned subsidiary of Rimage with
Cedar products continuing to be marketed under the Cedar name.
The majority of Cedar's employees are expected to be retained,
including Cedar's former COO, Jim Lewis, who will now act as VP
of Sales for the new Cedar Technologies division of Rimage.
With the applications for CD-R duplication and custom disc production
equipment moving well beyond the software industry, Rimage's decision
to acquire Cedar appears to have been driven by several factors.
First and foremost, says Rimage President and CEO Bernie Aldrich,
is a desire to "broaden our product offerings and the markets
that we serve." Developing systems capable of taking advantage
of these new market opportunities involves much lead time, so
by acquiring Cedar Rimage is put on the fast track. "We understand
Cedar's products," says Aldrich, "and can roll them into our offerings."
Aldrich went on to say that "in addition to having a reputation
for a good product line, Cedar was recognized as a well-run company
with no debt, so the acquisition was a logical choice."
More importantly for Ken Klinck, Rimage's VP of Sales and Marketing,
the Cedar acquisition gives Rimage access to a sales channel with
a different focus. "We operate through a network of distributors
and value-added resellers," says Klinck. "Cedar's distribution
network gives us new opportunities to expand into markets we haven't
been able to approach like audio, desktop publishing, and small
business." Rimage's subsequent renewal of MicroBoards Technology
of Chanhassen, MN as a key Cedar distributor provided immediate
affirmation of this separate channel strategy.
From an industry perspective, the deal puts Rimage on a more
aggressive footing. According to a product manager for a large
optical storage distributor who asked not to be identified, Rimage
is reacting to market threats from increasingly sophisticated
competition. "For example, MediaFORM or Microtech are playing
in Rimage's backyard with their new systems," he says. "Going
after Cedar makes a lot of sense, since it lets them counterattack
in the other's traditional markets." To put things in perspective,
Rimage's annual sales are reported to have topped $37.4 million
in 1999. With the addition of Cedar, the combined company will
be at least double the size of its nearest competitors.
Most industry insiders contacted appear to have been taken by
surprise by the acquisition. Apparently one reason the deal came
as a bit of a shock is that relations between Rimage and Cedar
haven't always been cordial. In January 1998, Rimage filed a lawsuit
against Cedar alleging that a former Rimage employee, who was
thereafter employed by Cedar, had violated the terms of a non-competition
agreement and passed along Rimage trade secrets which were then
used in the development of Cedar's CD-R Desktop Publisher system.
An out of court settlement was reached in June 1999, the details
of which have never been disclosed. When asked about any possible
connection between the current acquisition and the legal difficulties
of the past, Aldrich replied that the two were not related, in
that the law suit had involved "an entirely different investor
group at Cedar than is there now."
Aldrich says he decided to approach Cedar about the possibility
of an acquisition after hearing they might be receptive to an
offer. Up until that time, rumors had been circulating that Cedar's
investors were looking for greater security and stock in a publicly
traded company which a firm like Rimage had to offer.
The Rimage acquisition of Cedar also makes one wonder if this
is just the beginning of a larger industry trend towards consolidation.
Other somewhat related recent deals include Trace Digital's acquisition
of inkjet printer manufacturer Affex. According to Aldrich, Rimage
has no immediate plans for further acquisitions, but he doesn't
rule out the possibility in the future.
Industry shakeouts happen from time to time for a variety of
reasons, such as the presence of too many competitors, and the
struggles of small manufacturers with inadequate resources to
take advantage of growing sales opportunities. "Keeping up with
emerging technology is also a big problem," says Aldrich, "and
the investments needed to remain a player are more than a lot
of companies can afford. As for us, we spent $1.8 million on R&D;
this year, up from $1.1 million the year before."
With rumors currently circulating about the financial difficulties
of several CD-R duplicator manufacturers, further consolidation
may indeed be on the horizon.