Children's toy company VTech is trying to distance itself from recent security troubles through expansion.
Late last week, the company announced plans to acquire LeapFrog in a $72 million deal that's expected to close next month. On one hand, the move will mark a significant consolidation in the educational games and technology space, but perhaps more importantly for VTech officials, it may add consumer goodwill at a time when the company could use it.
Both VTech and LeapFrog specialize in making game console-like systems for children, largely focusing on improving skills like math and reading. Publicly-traded LeapFrog is a company that has a lot of consumer goodwill attached to it, having created the LeapPad and Leapster devices, which in the early- to mid-2000s were among the hottest children's products on the market.
While LeapFrog has struggled in recent years, failing to launch new must-have products, the consumer trust remains. And that's something VTech could use, after suffering a substantial security breach that affected nearly 6.4 million children in November, when hackers took personal information from its Learning Lodge app store.
Just shy of 5 million parents were also affected by the breach - and the hackers also obtained thousands of children’s and family’s images as well as audio recordings of children.
“When it’s hundreds of thousands of children including their names, genders and birth dates, that’s off the charts," wrote security expert Troy Hunt at the time. "When it includes their parents as well – along with their home address – and you can link the two and emphatically say “Here is 9 year old Mary, I know where she lives and I have other personally identifiable information about her parents (including their password and security question)”, I start to run out of superlatives to even describe how bad that is.”
Police in the U.K. arrested a 21-year old in connection with the case roughly two weeks after the incident. He was not immediately charged and authorities have not provided any additional updates on the case since the arrest.
VTech, though, has struggled to get its Web security systems up and running securely. The Learning Lodge app store went back online in late January, but other affected services remain suspended. The company says it intends to bring Kid Connect app (which lets children and parents share messages) back online at some undetermined future point, but other Websites, such as PlanetVTech and SleepyBearLullabyTime will be permanently shuttered.
That slow reaction time in dealing with its own security issues raises some concerns about how it will protect LeapFrog's customer data.
VTech representatives did not reply to an inquiries.
LeapFrog, though, couldn't survive on consumer goodwill alone. The company reported annual sales of just over $339 million in fiscal 2015, its lowest number since going public in 2002.
And with the buyout, VTech hopes it can turn the public focus away from security and back to its products.
"We are delighted to have the LeapFrog brand joining VTech, bringing together two of the great names in children's learning and entertainment," said Allan Wong, Chairman and Group CEO of VTech Holdings in a statement. "The acquisition will allow us to offer the broadest portfolio of products that enhance the education and development of children across the world."