Eliminate peaks and valleys
Richardson’s ultimate goal was to develop markets that were not
only more profitable but less cyclical in order to achieve sustained
top-line and bottom-line growth. By selling more products directly
out of China, where they were manufactured, rather than out of
California, Richardson sped up cash collections to an average of 60
days rather than the previous average of six months. With greater
margins and improved cash flow, he paid down $25 million in debt,
which ultimately freed up cash and credit lines for new acquisitions and the development of new products for emerging markets.
“To understand the challenge, you have to take a step back for a
moment and look at where we were positioned,” Richardson says.
“When you write to the console game market, your product is tied
to that specific piece of hardware. When you write for the video
game market, those games run on computers, so the hardware
essentially remains the same, so sales are more level and the market opportunity is larger.
“The best way to take advantage of the PC market was to tie more
of our gaming accessories to software, not hardware. We changed
our business model to include more products created for gaming
software by expanding our licensing agreements.”
Creating unique controllers, joysticks and steering wheels for all
the major sports leagues games through licensing agreements gave
Mad Catz a more stable revenue stream at high margins, while
strategic acquisitions broadened the company’s capabilities, product lines and markets.
Specifically, the acquisition of Saitek, a leading provider of PC
game accessories, PC input devices, multimedia audio products,
chess and intelligent games in November 2007, added nearly $43
million in revenue to Mad Catz’s top line at margins that were generally higher than those for Mad Catz existing products. In addition, it moved Mad Catz forward into the PC marketplace and
strengthened the company’s position in Europe, where it had
achieved only 22 percent of its 2007 sales prior to the acquisition.
“We made some strategic acquisitions in some adjacent categories that use the same skill sets, and they’ll allow us to leverage
our existing distribution system, so they make sense for us,”
Richardson says.
The combined results from all of Richardson’s 2007 initiatives
allowed him to reduce prices for some products late in the year,
while maintaining margin improvement. That move helped Mad
Catz regain some of its earlier lost revenue. Reduced prices and
the advent of new accessories create value for the ultimate end
customers, the gamers, who are always seeking the thrill of a new
gaming experience.