Mergers and Acquisitions

Lighting's new corporate reality

It's been a rough couple of years for the entertainment industry; between the economy and the threat of war, things aren't looking much better in the near term, either. Everyone is tightening their collective belts trying to weather the current storm. As we look ahead, predict the future, and divine meanings from all of the economic forecasts, it is worth looking back on the past decade and dissecting some of the reasons the lighting industry is in the state it's in.

Over the years, I had always heard that the entertainment industry is fairly recession proof; if it gets bad for us, it's going to be bad for everyone. Well, times are tough. The concert touring industry is flat if not down, filled with aging groups charging huge ticket prices and finding a fair amount of empty seats. Theme parks have been trying to figure out how to get customers through the gates for years now; Las Vegas is swamping television with amazing cut-rate deals to get people into its hotels.

A New Business Model

Mergers and acquisitions. Conglomeration. Consolidation. For some industries it makes some sense, but does it on the entertainment side? In the past few years there has been a movement in the distribution path where many theatrical dealers, and some manufacturers, have been acquired by one parent company or another to form a super dealer. On paper it was a business model that seemed to make sense: They could move equipment around from slow markets to busier ones. Eventually, almost all the original companies' names, not to mention their identities, were erased. Divisions that were doing well had to support the ones that were losing money; pretty soon, the whole organization was in trouble. Today, some of those larger organizations are having a particularly tough time in the current economic climate; some have folded up their tents. In the end, many small and mid-range distributors have prospered by staying focused and independent, and picking up clients that are looking for more personal treatment. These smaller, customer-loyal companies with lower overhead proved more capable of weathering slow economic times.

In the architectural market, huge conglomerates are the norm, with a parent company owning many smaller manufacturers. These groups are huge and are valued in the billions — yes, that's billions with a B. The conglomerates generally leave the original companies' identities in place, operating under a large umbrella. In recent years, these huge companies started branching into the entertainment market. Hubbell has created an entertainment division and, of course, the most recent acquisition is the Genlyte acquisition of Vari-Lite's manufacturing operations.

Like many in the industry, I have been sitting back and contemplating the ramifications of this purchase. What in the world is an architectural lighting conglomerate going to do with an entertainment lighting company? Especially one that is primarily in the touring market and whose products for the most part are used in concerts and industrials? When you look at Genlyte's earlier purchase of Entertainment Technology from Rosco Laboratories, it is easy to see how ET has benefited from the arrangement. It has kept its identity; the engineering and manufacturing might of Genlyte has been a boon to ET by taking its products to the next step and producing some very nice gear that will really expand IGBT dimming. From the very clever (and award-winning) Intelligent Raceway, to the simple yoke dimmer for an intelligent light like the Vari*Lite^® VL1000^™, or a standard theatrical fixture, the new products coming out of ET are advancing chokeless dimmers. It will be interesting to see how far Genlyte takes the Vari-Lite brand and in what directions. It will also be interesting to see if any of the other conglomerates buy up any more traditional entertainment manufacturers. Rumors are currently flying around about manufacturer A buying manufacturer B, but that's the way it's always been in this industry.

An Earlier Shakeout

Of course, this isn't the first time the lighting industry has gone through a major turnaround. At the end of the 1980s there were three large entertainment dimming and control manufacturers: Colortran, Kliegl Bros., and Strand. These companies all seemed to peak roughly around the same time and, after more misses than hits, Colortran hit hard times and was eventually sold to NSI; Kliegl did not weather the economic storms and folded shortly before its 100th anniversary; and Strand, while the strongest of the three, has undergone troubles of its own, as well as a couple of sales to various investment partners. A little over a decade later, almost all of the intelligent lighting manufacturers are in much the same situation. Most of the fiscal troubles can be traced back to various litigations amongst each other where the only winners were the lawyers. Many are struggling with the direction in which they steer their companies and many are trying to come to terms with the much-lower-cost products that are flooding out of China. Intelligent lights have become a commodity product; it will be interesting to see just how cheaply they can be produced. Will they become an expendable product?

I worry about the day when I walk into the LDI trade show and have two choices of which booth to visit first: the huge, mega-manufacturing empire or the one-stop, everything-under-one-roof distribution empire. It has always been a small industry with a great history. And I'll admit it: I miss the different characters and personal quirks of the small companies. That diversity led to some great innovations and some great career-long relationships. We are a co-dependent industry, whether owned by the same corporation or independently; our fates are indeed tied together. Two things our industry's history teaches us: (1) there is always a new direction to go in and (2) everyone will have an opinion about how to get there.