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Harmonic Hearing

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Harmonic Hearing Co. was founded in 1974 by former professor of Audiology, Otis Wren. Based in Plano, Texas, the company manufactured hearing aids, and, while smaller than many of the major players in the hearing aid industry, was successful and profitable throughout its history. This was indicative of the industry- the large, publicly traded companies, such as Great Nordic, Starkey, and Siemens, often reported gross margins around 60%, and net profit margins between 10-15% (Stevenson 2). Technology in hearing aids was ever evolving, however, forcing companies to invest heavily in R&D to take advantage of the most current technology. Never was this more important than within the last decade- with baby boomers reaching retirement, the “graying of America” was sure to lead to a sales boom across the hearing aid industry. With this strong history and expected growth in mind, Harriet Burns (CEO, 2011) and Richard Irvine (Chief Designer, 2011), were excited by Wren’s offer to sell the company to them. Wren proposed a selling price of 14 times the 2010 net income, or $25.2 million. Both Burns and Irvine agreed the price was fair, but they were faced with a situation- how to raise the capital needed to purchase Harmonic Hearing. Wren gave Burns three months to complete the transaction, creating a deadline of January 2011. To further complicate the situation, Harmonic was in the midst of developing a cutting-edge hearing aid that promised strong sales. To get the product to market quickly, Burns and Irvine needed to find additional capital to finance the R&D, manufacturing, and marketing of the new hearing aid. They could fund this additional cost by raising extra capital, or use internal cash instead (which could slow go-to-market time and dangerously deplete cash reserves). Burns and Irvine were fortune to have two alternatives for financing. The first

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