US-based Authorized Hearing Systems and German-owned Interton recently experienced a successful merger of companies, technologies, and management.

Consolidation has been a trend in the hearing aid industry in recent years, as such major players as Siemens (Germany), GN ReSound (Denmark), Starkey (United States), and Oticon (Switzerland) have acquired other companies in the quest for market advantage and economies of scale.1 In November 2001, privately held Interton of Bergisch Gladbach, Germany, joined the fray with its purchase of Authorized Hearing Systems (AHS) of Plymouth, Minn.

Representatives of the two companies—who had experienced a close working relationship over the previous 5 years—said in a joint statement that “the acquisition provides the new entity with a considerable leap in manufacturing, distribution, and technology that neither one could achieve alone.”

Founded in 1962, Interton is located near Cologne, Germany. Parent company Tuerk & Tuerk is named for its owners—brothers and co-presidents—Hellmuth J. Tuerk and Hans-Herbert Tuerk. Hellmuth and Hans-Herbert, respectively, oversee the commercial and engineering aspects of the business. Hellmuth got his start in the hearing industry as a sales rep for a now-defunct German firm.

Authorized Hearing Systems (also privately held) was founded in 1979 in Bristol, Pa, by Henry Smith, an electrical engineer who became involved with hearing health when he began fitting custom ear molds for the hearing impaired at the Pennsylvania School for the Deaf. Realizing the business potential of his endeavor, Smith started a small company that fabricated similar custom ear molds for a variety of customers. It later expanded to manufacturing custom-fit hearing aids and shortly thereafter incorporated as Authorized Hearing Systems.

In 1994, Smith opened a full-scale manufacturing plant in Minnesota, an area of the country that has a sizable labor market experienced in hearing-aid manufacture, engineering, and operations. Prior to its sale last year, AHS had built a solid reputation for reliably manufacturing a complete line of hearing instruments and offering dependable service to a steadily growing customer base.

Currently incorporated as a company called Interton/AHS (the expectation is that “AHS” will eventually be dropped), it was created to focus on the specific needs of North American markets. Together with Interton-Germany, the company develops, produces, and markets almost 60 different types of hearing aids in about 48 countries.

SagollaStephan Sagolla, president of US division and vice president of Interton

A Truly Successful Merger
Stephan Sagolla, the German-born president of the United States division and vice president of Interton—Germany’s international division, calls the acquisition “the only truly successful merger in the whole industry in the past 5 years.” Most of the European buyers of American hearing-aid companies have failed to understand crucial differences between US and European markets, Sagolla says. What Interton brought to the table was its willingness to hold onto current management in the United States, he says.

“Most companies exchange management immediately. They put in place upper and middle management that comes from Europe or has been trained by a European company to work in the United States. That leads to the fact that the companies lose very valuable management in the United States, people who understand the market and the customers.” The loss of knowledgeable management leads to other losses, including key sales reps and business, he adds.

Interton, on the other hand, chose to keep the entire AHS management team in place when it acquired the business, Sagolla explains. “We tried to adapt to US needs, instead of doing it the other way around.” The strategy, he continues, was to focus on providing good customer service. That is quite a contrast to European business practice, he says. “Because US customers pay higher prices, their expectation of service is also higher,” Sagolla says. “European companies like to cut costs and try to minimize service.” Toll-free numbers and free shipping, for example, do not exist in Europe, he says.

Several months before the acquisition took place, Sagolla arrived in the United States to work at AHS, traveling with sales representatives in order to observe customer reactions and expectations. “I did learn a lot and I think this [has played] a part in our success,” he says.

In the year since the acquisition, Interton/AHS sales have increased by 35% in the United States, Sagolla says. (Since it is privately held, Interton does not release exact dollar or sales figures.) Overall, Sagolla estimates that about 6.5 million hearing aids are sold worldwide annually, with the United States representing the largest single market for hearing aid products, at about 2 million. Interton sells about 30% of its products in Germany, about 60% in the United States, and about 10% in the rest of Europe and other countries, he says. Its overall share of the hearing aid market is about 10% in Germany, 5% in the United States, and between 6% and 10% in various countries in which it sells.

Until it acquired AHS, the German company sold its products in the United States primarily under other manufacturers’ names. “We had many, many Interton products on the market for a long time, but nobody knew them as Interton,” Sagolla says.

BenderBrian Bender, director of sales and marketing for Interton/AHS

Interton is one of the few companies that produces its own hybrid for digital technology, according to Brian Bender, director of sales and marketing for Interton/AHS. In coming into the US marketplace, it was seeking a company that specialized in building custom in-the-ear (ITE) hearing aids. “That’s what AHS did very well. They were not an engineering company—they would use off-the-shelf technology—but they were really good at building hearing aids that fit. So it was a perfect match when we merged Interton’s engineering [capabilities] with a company that specialized in custom products. Now we have the best of both worlds.”

The world’s second-largest independently owned manufacturer after US-based Starkey, the company is perhaps sixth in market share worldwide, Bender says. Extremely competitive, the hearing products market, affected by the economic downturn of the past 2 years, has been somewhat flat, Bender says. Demographics, however, favor the industry, with aging Baby Boomers likely to provide a growing market for hearing aids, he added. Interton has weathered the recession particularly well, Sagolla says. “We’re a new player, and people are interested in buying from us.”

Another phenomenon that has occurred in the industry is that as technology has moved toward digital processing, the prices of digital hearing aids have risen exponentially, but are now starting to come down as companies recoup their costs, Bender says.

Made in Germany
Part of the company’s edge is its “Made in Germany” label, Sagolla says. “We do think differently. When you look inside our instruments, this is good old German craftsmanship. This is a quality product.”

Unlike many of their competitors, Interton’s products are manufactured in Germany rather than in countries such as China or Malaysia. “It makes our product more expensive, but only for us,” Sagolla says. The customer does not pay more, but the quality, he maintains, is better, and the return rate is substantially below that of the rest of the market, which offsets Interton’s higher manufacturing costs and demonstrates improved customer satisfaction.

Most of the materials Interton uses in its manufacturing are made by the company itself, including plastic parts. “Whatever it is, it’s our own product, developed in Germany and made in Germany in our own facility, so we have control over what is going out there,” Sagolla says. Since the company has existed for more than 40 years in the same spot, many of its employees have worked in production for almost 30 years and are highly skilled, he says. About 140 employees work in Minneapolis, and the same number are employed in Germany, Sagolla says. Most of the products are manufactured in Germany, with the custom-fitted, in-the-ear shells produced in the United States.

Interton/AHS sells a wide range of behind-the-ear and ITE hearing aids, analog, programmable, or fully digital systems—the so-called “multi-digital” hearing aids. In March, the company released EVO, a multi-digital hearing instrument line that it said had already experienced “considerable success” in the European hearing-aid market. The device employs multi-channel digital sound processing and adjustable Speech Management System (SMS) and Microphone Noise Reduction (MNR) technology. According to company literature, the automatic SMS is designed to “help the patient better focus on speech sounds by suppressing unwanted noise in a process that reacts as fast as 50 microseconds.”

Interton’s company-owned research department focuses on proprietary microchip development for its digital product line, as well as on refining other marketable technologies. The microchip, the heart of the digital sound processing, is becoming smaller and smaller, along with the batteries used to power the hearing device. “The hearing-aid industry over the last 5 or 6 years has finally figured out how to do digital signal processing using incredibly small batteries incorporated on a small chip,” Bender says.

Although Interton’s Speech Management System is proprietary, other manufacturers are taking similar approaches to the issue of filtering out unwanted background noise and amplifying speech, Bender says. “Everyone has the same problem.”

In May, the company came out with a new “soft-solid” shell product designed to replace its hard-acrylic shell in fitted hearing aids. The advantage, Bender explains, is in the device’s softness and flexibility. “The ear is very dynamic, and as you move your jaw, the ear canal moves. The hearing aid, being soft, would move with it. It also protects the internal components from shock damage.” Most hearing aids are hollow, encased in hard acrylic, and easily damaged.

Before the end of the year, Sagolla says, Interton expects to be the first in the market to introduce an in-the-ear wireless cross system, a device for the patient with good hearing in one ear and impaired hearing in the other. “There is very little product of this kind available and none of the products is available for in-the-ear wear,” he says.

Another product that will be introduced in the next few months is a new portable computer that is about the size of a personal digital assistant (PDA), about 15 cm by 10 cm, it will make it easier for a hearing-aid dispenser to make a home visit to a patient. “He will have everything he needs in one little computer,” Sagolla says.

Despite these developments, Bender says, Interton/AHS does not place its emphasis on being a leading technology company. “What we want to do is to provide technology that is as good as anything on the market but at significantly reduced prices.”

Another way that the company differentiates itself, Sagolla says, is through the software that the dispenser, audiologist, or physician uses to fit the patient. “I think we have the most easy-to-handle software on the market,” he asserts. “The dispenser doesn’t need to have a 1-week training course to learn how to use it. It’s so intuitive that after 5 minutes you know how to use it.” Other companies try to crowd as many features as possible on the software, which tends to make the fitting procedure long and arduous, he says.

Even though the number of players in the hearing-aid market is decreasing, Sagolla is sanguine about Interton’s future. “It’s still a pretty stable market, and people do need hearing aids.”

Bender, who worked for AHS only a brief time before it was acquired by Interton, anticipates the company will experience continued growth, launch more new products, and remain a “value company.” He also expresses the hope that the dispensers and audiologists will be able to “maximize their profits, so they can afford to advertise to bring in new customers and get the message of hearing health out to the masses.” That message, he says, is unfortunately not being heard by those who most need to heed it.

“What really needs to be advertised is a message about hearing health and how it can benefit people to have their hearing checked or to get a hearing aid,” Bender says. Most consumers do not understand the products or much about their own hearing health, he says. “It would be wonderful if our industry could somehow figure out how to do a ‘Got Milk?’ campaign for the hearing-aid industry.”

Ruth Stroud is a contributing writer for Hearing Products Report.

Reference
1. Lotz P. The Old Economy Listening to the New: E-commerce in Hearing Instruments. Paper delivered at: The E-Business Transformation: Sector Developments and Policy Implications; September 26-27, 2000; Washington, DC.