With a debt of 3.1 billion yen, ONKYO, a long-established Japanese audio equipment manufacturer, filed for bankruptcy

On May 13, ONKYO, a long-established Japanese audio equipment manufacturer, announced on its official website that the company was filing for bankruptcy procedures with the Osaka District Court and that its total debt was approximately 3.1 billion yen.

According to the announcement, Onkyo was insolvent twice in March 2021 and decided to terminate its listing.

In order to keep the company running, Onkyo transferred its home audio and video business to Sharp and VOXX, and e-onkyo music was transferred to France's Xandrie, which operates the high-definition streaming media Qobuz. The remaining domestic sales and OEM businesses were operated by its subsidiaries Onkyo Sound and Onkyo Marketing, but they eventually stopped operations in February 2022 due to financial difficulties and filed for bankruptcy in March.

Even after the subsidiary went bankrupt, Onkyo still planned to continue operating on a small scale using the commissions from the transfer of its home audio and video business. However, it was ultimately unable to prevent the deterioration of its cash flow and filed for bankruptcy.

Image source: Onkyo official website

Before getting into this situation, Enbridge had been struggling to rebuild its operations.

As a brand with a long history of audio, amplifier and home theater, its traditional HiFi products have been severely impacted in today's mobile digital era, resulting in a decline in profits. Although the company has previously tried to sell its business, cooperate with other brands, and OEM, the financial crisis has not been alleviated.

The first failure Onkyo encountered was the cancellation of the sale of its home audio and video business. In May 2019, the company announced that it had reached an agreement with its American counterpart Sound United to sell its home audio and video business to the other party for about 8 billion yen. Onkyo President Munenori Ohama said that "we will stop the home audio and video production business, accept OEM production, and strive to achieve growth." Onkyo's sale of its ancestral business shocked the industry, but later based on Sound's intentions, the transaction was postponed. The final conditions were not reached, and the agreement was canceled on October 4, 2019. This caused Onkyo to fall into insolvency in fiscal 2019.

As the insolvency situation continued, Onkyo relied on the British Cayman Islands investment fund "Evo Fund". In July 2020, Onkyo announced a plan to issue new shares in eight batches to raise 4.6 billion yen. An executive of Onkyo said, "Even if the stock price is low, the minimum capital can be ensured." However, due to the low stock price, the plan to issue new shares was only implemented four times.

In January 2021, Onkyo held an extraordinary shareholders' meeting and decided to allocate the right to reserve new shares to EVO FUND. Onkyo said that "considering the severe financial situation and the impact of the new crown epidemic, (the fund) may not exercise the right." Although Onkyo said there are risks, it is expected to raise up to 6.2 billion yen (including the capital contribution in kind of stocks).

On June 25, 2021, Onkyo shareholders approved the proposed transaction at its ordinary shareholders meeting, and on June 28, 2021, PAC and Sharp announced the formation of a joint venture to become the acquiring entity. The total purchase price is $30.8 million, plus the assumption of certain liabilities and future commissions to Onkyo on certain product sales. PAC owns approximately 77% of the joint venture and Sharp owns approximately 23%.

If Enbridge had completed the sale by the end of June as planned, it would have solved the problem of excess debt. However, due to the impact of the COVID-19 pandemic and the filing of antitrust laws in various countries, the entire transaction was not completed until September 8.

On the one hand, due to the delay in the transaction, the fixed cost of the period could not be absorbed, resulting in debts of more than approximately 2 billion yen being transferred by the business and unable to be repaid by payment.

On the other hand, the semiconductor supply problem has not improved at all, and domestic home audio and video products have also entered a state of being unable to be delivered, and the same problem has also affected customers of the OEM business. The business of the two subsidiaries, Onkyo Sound and Onkyo Marketing, is unsustainable, and they began to file for bankruptcy on March 18, 2022.

After the subsidiary went bankrupt, in order to repay debts, Onkyo planned to use the commission fees from the transfer of the home audio and video business to operate on a small scale. However, the semiconductor supply problem has not been resolved, and the commission income has been lower than expected. Ultimately, due to difficulties in capital turnover, it decided to file for bankruptcy.

Onkyo director Hayashi Heng once said in an interview that "the mini-component audio market that has supported the company's growth in the past is close to disappearing." Onkyo has been expanding its business in the home theater field, but has failed to adapt to the ever-changing entertainment market and has failed to cultivate a new source of income. The sales of speakers, which are a source of profit, have continued to decline, and due to lack of funds, it has fallen into a vicious cycle where it cannot even maintain product manufacturing. Previously, there were also complaints from home appliance hypermarkets that "Onkyo products are not available at all."

At present, Onkyo's products include 5.1-channel and 7.2-channel home theater amplifiers, as well as HiFi stereo amplifiers, combination audio systems, etc. Among them, the home theater amplifier supports technologies such as Dolby Vision, DTS:X, Dolby Atmos, and has AccuEQ room acoustics calibration function.