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Crossing the Channels: Rimage Acquires Cedar

Hugh Bennett

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, MN.

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.

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