Though the “Big Six” hearing aid makers are still intact, consolidation isn’t over in the hearing industry

By David H. Kirkwood

A couple of weeks ago when I was attending the International Hearing Society Convention, I heard from a reliable source that William Demant, the parent company of Oticon among other hearing care companies, had recently purchased MedRx. Founded in 1994, this Florida-based company has grown into a leading manufacturer of hearing care testing and fitting equipment. It’s especially known for its video-otoscopes and speech mapping systems.

Given how many companies Demant and other hearing industry giants have acquired, the news was not surprising. However, it was interesting that no press releases were issued nor articles published about this significant transaction. Before reporting the story here, I got confirmation from Demant. But, except for the date (August 1), no other information was available, including the price.

A financial analyst who covers the hearing industry estimates that Demant probably paid somewhere in the neighborhood of 100 million Danish kroner (or about $18 million) for MedRx.

Both the secrecy of the transaction and the fact that it involved a hearing aid manufacturer buying another type of hearing company typified the current phase of consolidation in this industry. This news also got me to thinking about the changing patterns of mergers and acquisitions taking place in this industry over the past quarter century.

Hearing Aid Industry Part of Universal Trend

As in virtually every industry, hearing care has seen a trend of bigger companies buying up smaller companies. There was one especially hectic period from 1999 to 2001 when, among other transactions:

• Beltone purchased the hearing aid division of Philips Electronics.

• Starkey Laboratories bought Micro-Tech.

• A Siemens Hearing subsidiary acquired Electone.

• GN Great Nordic (now ReSound) purchased ReSound and Beltone.

• Unitron Industries acquired Argosy and Lori Medical.

• Phonak AG (now Sonova Holding) purchased Unitron.

The flurry of acquisitions during that period left standing a group of six companies, often referred to as “the Big Six,” that dominated the world of hearing aid manufacturing: They were GN ReSound, Siemens, Sonova, Starkey, Widex, and William Demant/Oticon.

The Big 6 Hearing Aid Companies Remain Intact, But Barely

Given how quickly a once-fragmented manufacturing sector came under the sway of six companies, it’s somewhat surprising that, a decade later, all six of them are still the industry leaders. But if you think that means the age of consolidation is over, think again.

First of all, it’s something of a fluke that one or two of the six are still independent entities. In 2006, readers may recall, a deal was signed and sealed for Sonova to purchase ReSound from its parent company, GN Store Nord, for more than $2.6 billion. All that prevented delivery from taking place was an unexpected ruling by the German Federal Cartel Office that the merger of the two companies would create an illegal oligopoly.

Three years later, the German industrial giant Siemens let potential buyers know that its hearing aid division was on the block. While Siemens tried to keep it quiet, the news quickly came out. As it turned out, no one offered the price Siemens was looking for, so the Big Six remained standing.

Ironically, had the parent company waited one more year to shop Siemens Audiologische Technik, it might have found a buyer. But in 2009, the ruling that had killed the Sonova-ReSound deal was still in effect, discouraging other major hearing aid companies from bidding for Siemens. However, in April 2010, the German Federal Supreme Court reversed that ruling, seemingly opening the door to mergers within the Big Six in the future.

Acquisitions Continue, But With Changes

Despite the survival of the Big Six, there is no sign that consolidation in the hearing industry is slowing. Rather it is changing, as companies that were once primarily hearing aid manufacturers are diversifying by acquiring businesses in other areas of hearing care.

True, there are still transactions involving a big hearing aid company buying a smaller one. For example, in early 2010, Sonova purchased InSound Medical, inventor of the Lyric Hearing Aid

Later that year, after a spirited bidding contest with ReSound, William Demant acquired Otix Global, Inc., parent company of Sonic Innovations. While Sonic was probably the largest hearing aid maker after the Big Six, some observers believe that Demant’s primary motivation was to acquire a chain of retail hearing aid offices in Australia that was part of Otix.

Finally, near the end of 2010, the Danish Widex A/S, which had generally stayed out of the M&A arena, reached an agreement to take over the New York-based Widex Hearing Aid Company. For 54 years, the two companies had been separately owned partners, with Widex Hearing Aid Company distributing Widex hearing aids in the U.S. and also doing some manufacturing.

Beyond Hearing Aid Manufacturing

Demant’s purchase of MedRx is the latest in a series of transactions in which Big Six companies have reached beyond hearing aids. Demant has recently purchased three distributors of special audiometric equipment: Northeastern Technologies Group, Mid-lantic Technologies Group, and Gordon N. Stowe and Associates.

Sonova has also broadened its scope in the past couple of years, buying Advanced Bionics, one of the three major cochlear implant manufacturers.

To be sure, diversification isn’t new in the hearing care field. Demant added Maico Diagnostics to its holdings in 1995 and Interacoustics in 2000. Not to be left behind, ReSound acquired Danplex, Hortmann, and ICS Medical, and combined it with Madsen to form GN Otometrics, a leading player in the area of special instruments.

Expanding Into Retail

Perhaps the most significant current area of manufacturer expansion is hearing aid retailing. All the major hearing aid makers except Widex have become increasingly active in the sale of their products to consumers.

In the past few years, Sonova has purchased Newport Audiology and Hearing Planet, Demant has become sole owner of American Hearing Aid Associates (AHAA), and Siemens Hearing Instruments has acquired the assets of HearUSA. In addition, a number of manufacturers have purchased or gained a financial stake in individual dispensing offices.

This trend is of concern to many practitioners. David Smriga, an audiologist and president of AuDNet, Inc., has long warned about the threat that it poses to independent dispensers. In a recent article at Audiology Online (“Are We [Still] Asleep at the Wheel? An Update from Seven Years Ago,” posted September 12, 2011) Smriga estimates that “the percentage of hearing aid provider locations in the United States that are independently owned and autonomous in their decision-making and unaffiliated with a corporate business owner has gone from 46% of the 11,000 locations in 2004 to 23% of 12,000 outlets in 2011.”

There is no mystery why manufacturer involvement in retail troubles dispensers. When companies that make hearing aids also own or have an influence over sales outlets, independent practitioners often find themselves competing for customers against practices owned by the companies that supply their hearing aids. And, they may suspect, their competitors who are affiliated with manufacturers may be paying less for the same hearing aids than they are.

This may explain why manufacturers often try to minimize press coverage of their retail activities. For example, when Sonova purchased Newport Audiology and when Demant took over the remaining 51% of American Hearing Aid Associates, the companies requested that U.S. trade journals not report the deals. Given the journals’ dependence on hearing aid company advertising, those requests were taken seriously.

Not all such purchases have received so little press. When Siemens bought the HearUSA assets this year and when Demant’s purchase of Otix increased its retail presence, the transactions involved very public and competitive bidding against other would-be buyers.

However, as in the case of Demant’s purchase of MedRx that I started this article with, it seems that the Big Six aren’t eager to draw attention to their increasing dominance. But, if history—both of the hearing industry and business in general–is any guide, I think we should expect the Big Six to become bigger in size and, most likely fewer in number, over the next decade.

2017: Post-Publication Update

The hearing aid industry continues to consolidate as it did when this article was first written in 2012. While Siemens has sold off its hearing aid division to private investors, the new company has gained marketshare and remains among the “Big Six” manufacturers. Sonova and Demant continue to expand into retail, with Sonova now rivaling Amplifon to become one of the biggest hearing care retailers in the world after acquiring AudioNova in 2016.

With the encroachment of OTC hearing aids in the coming years, we don’t expect the industry acquisitions to slow down anytime soon.