July 30, 2005 – A MERGER that would have changed the face of the handheld IFE sector has been abandoned, IMS and Wencor announced yesterday.

Utah-based Wencor, owner of APS and its market-leading digEplayer, was to have acquired Californian IFE specialist IMS and its PEA system under a letter of intent first publicised three weeks ago (Inflight Online, July 8). But yesterday the two companies said that the buyout would not go ahead, with Wencor CEO Brent Wood citing “irreconcilable differences on several key issues.”

IMS chairman Joe Renton said that the discussions had been brought to an end “on an amicable basis” and emphasised that his company remained committed to winning leadership in the portable and lightweight IFE markets. “We have lost no momentum and look forward to new product announcements at the WAEA show in Hamburg this September.”

The collapse of the IMS/Wencor deal means that the competitive landscape in the handheld sector remains unchanged, with Wencor/APS leading the field with digEplayer and developing the semi-embedded digEsystem. But IMS is hard on its heels with PEA, which has attracted a number of airline orders this year and which is seen by many as having a superior content-supply infrastructure. In a distant third place at present is Astronics with the former General Dynamics YES! system.

A successful merger between IMS and Wencor’s APS would have created a player that would have taken some stopping. During their brief courtship the companies spoke of creating a three-unit product range addressing what they saw as the three main segments of the market and embodying all the strengths of digEplayer and PEA. Now they are locked in competition again and showing every sign of being ready for an Airbus-versus-Boeing-style struggle for market share.

Clues to the causes of the IMS/Wencor rupture can be found in the terms of the letter of intent, which spoke of IMS and APS being merged into a new company in which Wencor would have had majority ownership while the existing IMS management team ran day-to-day operations.

To outsiders that was a logical arrangement. IMS has been in IFE for years, and in PEA it has developed a product that is rapidly making a name for itself as a sound end-to-end solution. Wencor, by contrast, is essentially a spares supply company that bought its way into IFE through its acquisition of APS last year.

Sources close to the deal suggest that if there was one thing that would have caused IMS to pull out, it would been an indication that the new owners did not in fact plan to give Renton and his men the freedom of decision they saw as essential. The IMS president more or less said as much yesterday: “The IMS team is made up of people with extensive industry experience in their respective fields. That experience is a big part of who we are, and is more important to us than some of the advantages that would result from joining a larger organisation.”

Another strength of the IMS management team lies in its long-nurtured and vitally important relationships with content providers. “It takes years to earn trust and one careless decision to lose it,” says one observer. “IMS is known for strong relationships in this area, and it is difficult to imagine there being much tolerance of basic changes.”

The original IMS/Wencor plan to produce a three-product range continues to make sense, and the failure of the deal would appear to leave IMS in search of a digEplayer-style low-cost alternative to its two PEAs. Again, however, sources suggest that IMS was already well on its way to developing such a solution for itself and has not lost much time as a result of the abortive merger.

With the engagement to Wencor now history, it seems that IMS is not short of new suitors ready to fund the necessary development work. “It might turn out to be be easier for IMS to find another partner with deep pockets than it will be for Wencor to find an IFE-experienced management team,” comments one source.