Runco is known as much for creating “the world’s finest home theater products” as throwing the world’s greatest parties. The company announced yesterday it would be acquired by Planar Systems, a publicly traded company with considerably less sex appeal.

Runco International is known as much for creating “the world's finest home theater products” as throwing the world's greatest parties hosted by founders Sam and Lori Runco. The company announced yesterday it would be acquired by Planar Systems, Inc. (NASDAQ: PLNR), a publicly traded company with considerably less sex appeal.

Runco dealers everywhere want to know: Is this the end of their annual junket to Mexico?

“Book your flights now,” says Scott Hix, vice president and general manager of Planar’s Home Theater business unit, which will absorb the Runco and Vidikron brands. “I can't turn my head that Runco is still part of a public company, but the CEO, the CFO, and the board of directors understand that the interest in the brand ties as much to emotion as to [the products].”

He says the Planar group recognizes that the “secret mojo” that makes Runco so successful must be “carefully protected.”

In fact, says Runco president Bob Hana, the Runco personality has already spilled onto the suits at Planar. “You know how we dress, with Hawaiian clothes?” he says. “Now they're all dressing like that.”

Hix points out, “We're only a $220 million company. We're not that big that we can't be nimble and fun.”

Runco, by comparison, had net sales of $54.6 million in the 12 months ending March 31, 2007. Planar's resources are not lost on John Bishop, a manufacturer's rep for Runco. “Today, we take 25 or 30 dealers to Mexico. What happens if you take 200? You could really create a club.”

More than a Party

Besides throwing bigger parties, Planar can help take Runco to places it couldn't go before with its relatively limited resources.

Hana was brought into Runco four years ago to help strengthen the family-run organization. He says the company has improved its infrastructure to support growth, “but there are still limitations,” he says. “We still need more.”

Planar brings much-needed infrastructure to Runco, says Hix. “We've got the logistics and the quality control, with Planar being an ISO company.”

Those resources extend beyond North America.

Currently, Runco is heavily focused on the North American market, where it does about 80% of its business. Planar, on the other hand, derives more than 35 percent of its revenues outside of North America.

“We have factories in Finland, and infrastructure in Europe in Asia,” Hix says. “We have local call centers where they speak Italian, they speak German, they speak Spanish …”

Planar plans to exploit the infrastructure to expand Runco's international presence.

On the product side, Runco's core strategy and its dealer base will remain unchanged, Hix says, “Hopefully we will augment the current technology segments,” which today includes high-end home theater projectors, and plasma and LCD displays.

Longer term, however, Planar plans to contribute some of its own technologies to the Runco repertoire, “to be additive to the Runco brand,” Hix says. He declines to elaborate but says, “There are some interesting things I think Runco can be a part of.”

Today, Planar offers a variety of display hardware and software for a variety of specialty display markets, including hospitals, shopping centers, banks, and governmental agencies.

New Products for Runco?

Runco could sure use some product extensions. The company started out making nothing but projectors — lots and lots of models, but still only that single product category.

Finally, a few years ago, the company expanded into the flat-panel business, making plasma TVs and then LCDs. And why not? The company's captive dealer base was selling loads of these products to their wealthy customers. They may as well be Runcos.

But Runco should be doing a lot more to take advantage of its loyal dealers.

So what could Planar bring to the party? 

Planar launched a home theater division in 2006 with a line of projectors ($1,299 to $9,999), LCD TVs and the Xscreen projector screen. 

I doubt the company will slap Runco logos on its economical TV products, but the screen would make some sense. Available in four sizes up to 100 inches, the Xscreen reportedly eliminates reflection from any sources other than the projector itself, creating a colorful, sharp image, even in bright conditions.

Beyond the obvious, though, I could see Planar lending some of its more commercial-oriented products to the Runco channel. Digital signage, for starters. Planar got into that business when it acquired Clarity Visual ($60 million in revenues) last year.

It's a product category that has grown increasingly popular among home systems integrators.

I doubt it's in the cards yet, but Runco also should consider getting into the LCD monitor business. Planar is a leader in that category, which is becoming an increasingly low-margin business. With the advent of Microsoft's new Vista platform, there could be a big opportunity for home systems integrators to sell and install high-end Vista-certified PC monitors.

During the most recent Runco Getaway in Mexico, where I discussed emerging opportunities with the group, I encouraged dealers to consider selling and installing PC monitors. As Vista PCs are as much media players as they are productivity machines, consumers will demand widescreen, HDMI-equipped, professionally calibrated, Vista-certified monitors. Why shouldn't they be Runcos?

What's in it for Planar

Finally, Planar will get a good space at the CEDIA Expo. 

“We wanted to be at the front of CEDIA,” Hix jokes. “I never thought it would cost us $36 million.” (Runco has more CEDIA priority points than any other exhibitor. Planar is a lowly No. 323 out of 518.)

The acquisition helps put Planar back on a track of higher-value, higher-margin products. The company has seen margins slipping as its core TFT monitor technology becomes commoditized. 

“We needed to find a direction to get more into specialty displays, and away from commodity displays,” Hix says. 

A new CEO, Gerald K. “Gerry” Perkel, took the helm in 2005, to see to that mission.

Acquiring Clarity in 2006 was a first step, and at the same time the company began to grow organically into the custom home business with its Xscreen, projectors and flat displays.

To run its home theater group, Planar hired a team of seasoned home theater pros, including Hix and Jim Davis, former execs of Infocus, and Brad Gleeson, formerly of ActiveLight and CineLight.

“Six months into that opportunity we had a meeting with Sam [Runco] and Bob [Hana], and as we began to talk about what they wanted, and the fact that we wanted some acceleration in the custom home market, Sam said it might be time. He thought we knew enough about the market that we would not do harm to the Runco strategy.”

Lucky for Planar. Runco could have had its pick of parents. D&M and Nortek must have been beating down Sam Runco's door.

“Over the years, Sam has listened to every one,” Hana says. “It came down to timing and resources.”

So why did Runco go with Planar? For one, stock up front is a good thing. Planar acquired the assets of Runco for $36.7 million in cash. D&M or Nortek probably would have given more, but probably not all in cash.

More importantly, though, Planar really seems to have the wherewithal to take Runco to the next level. Joel Silver of Imaging Science Foundation (ISF) is a longtime friend and business associate of Sam Runco's. He says, “Dealer service, customer support, nobody does a better job than Sam. Product innovation, taking long shots and having products actually work out, nobody does that like Sam.”

On the other hand … product forecasting? Not so good. 

Runco, for example, underestimated demand for some of its 6-figure projectors. “That would have taken some bold cash-flow steps,” Silver says.

Runco has launched some “really radical products, and he did it properly,” Silver says. Such innovation doesn't come cheap.

And that's where Planar fits in. “Refining manufacturing, managing cash flow, that Planar knows how to do from other industrial ventures,” says Silver. For their manufacturing skills, it's a good match. … Runco needed skillsets that I think Planar has available.”

A Dealer's Perspective

Genesis Audio is one of Runco's oldest and best dealers, and president Bill Anderson is a close personal friend of the Runcos. In the past 15 years, Anderson says he's only been out of the Runco Top 10 dealers once, and lately he's almost always in the Top 3.

“Marketing skills, enginering and Sam's charisma is the magic formula [for Runco],” Anderson says. “I think with a big firm like Planar behind them, they can really do a great job.”

Anderson lauds Runco for doing such a sensational job as a sole proprietorship with a lean team. 

“Sam has always funded innovation,” he says. “Now Runco is backed by a copmany that can fund structure and processes. … It's great to have a company with great ingenuity and foresight, and now more money to grow it.”

Other than that, Anderson says, “I don't think there's going to be much of a change.”

Sam, Lori, and the Future of Runco

I spoke with the rep John Bishop shortly after the Runco/Planar announcement was made, asking about the buzz in the field. He says, not surprisingly, “The first question everyone asks is: Is this good for us? My answer is: I think it's very good. Runco's limitations were financial and infrastructure, not creativity.”

The new resources will allow Runco to be even more creative, Bishop says. “I don't think we're going to be losing that personality which is a big part of the company's success.”

That personality, by the way, isn't going away. Sam and Lori Runco will still be toasting dealers (never the working press, of course) with tequila shots at the Mexico Getaway and elsewhere. “We want them there. We couldn't keep them away even if we wanted to,” Hix says.

Sam Runco will still play a big part of the organization in a consultative role. “He won't have to be there five days a week,” Hana says.

And you can be damn sure the Runco brand isn't going anywhere. Years from now, Hix says, the Runcos' “grandkids and great grandkids will be looking at Runco in luxury homes.”

On a Personal Note

Sam and Lori Runco have been great friends of the custom home industry for many years. They have been friends of CE Pro, and friends of mine, as well.

Typically, when these types of acquisitions get announced, cynical dealers whine and moan about the deterioration of the independent manufacturer. In this case, though, I have heard nothing but cheers from the industry. 

“The only things the reps and dealers complain about is: Where's the product? I want it now, and I want 20 of them,” says Joel Silver. “This will be a good thing for them.”

Sam and Lori and their family deserve this, and every one knows it. They also know that Sam would kick Planar's butt if the company did anything to screw with the Runco brand.

At the most recent Runco Getaway in April, Sam choked back tears when he addressed dealers, reps, and other friends of the company. “It's a club,” he said “We're all friends and family.”

We wish the Runcos the very best.

Planar will “carefully protect” the “secret mojo” that has made Runco so successful.

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