InformationWeek
Defining The Business Value Of Technology
November 10, 1997
Channel Strategies: Acquisition Trend
Increased costs, other factors are fueling national resellers to buy regional onesBy Eric Hausman and Jerry Rosa of Computer Reseller News
As a result, corporate customers who now purchase all or part of their IT products or services through smaller regional integrators will likely see these players expand their coverage nationally and internationally. Among the many factors fueling the consolidation trend are new PC channel-assembly programs, E-commerce developments, and increased reseller infrastructure costs.
"What you have is a situation where fundamental changes are happening to the channel," says Jeffrey McKeever, chairman and CEO of MicroAge Inc., which is buying up its own franchises as well as purchasing other companies. The Tempe, Ariz., reseller predicts its company-owned business will account for
25% of its total sales by next year, up from between 10% and 15%.
Resellers that have spent years building profitable organizations with large corporate customer-services accounts and strong presence in their local markets are being courted aggressively by larger integrators such as MicroAge, Inacom, and Ikon Office Solutions. For these smaller resellers, the lure of big payouts and the opportunity to continue to run their businesses are often too attractive to pass up.
"Resellers recognize [their] costs to compete are going to go up fairly dramatically," McKeever says. "There aren't many midsize dealers who can afford it."
Bill Fairfield, president and CEO of Inacom, in Omaha, Neb., which has continued to make selective acquisitions over recent years, agrees. "Given the nature of the business, where there's more of a premium placed on high-end services and the capability of doing build-to-order, all the trends point to higher infrastructure costs," he says. "A lot of local and regional people have det
ermined that long-term they probably are not going to be able to hold the same competitive positions as the past. They realize it's a good time to look around."
Meanwhile, channel assembly, with the associated reduction in price protection from PC manufacturers, will also force many resellers' hands, predicts Ed Anderson, president and CEO of CompuCom Systems Inc. in Dallas.
"They are all toast," Anderson says. "They had hopes when IBM had 24 people in the channel-assembly program, but there is no room for regional [resellers] doing channel assembly. The shrewd ones know it, and the others are in fantasy land."
Aggressive Strategies
And other resellers, such as Bob Din, CEO of En Pointe Technologies Inc. in El Segundo, Calif., are not concerned about price protection issues because they do not hold any inventory.
"The folks in the channel will have to do one of three things," Din says. "Either the smart ones will sell for the right price, the stubborn ones will go out of business, and the others will amend their business models and become sales agents."
-with David Jastrow
onsolidation is sweeping the PC distribution channel as national resellers buy smaller regional ones in an effort to bolster their North American and global integration groups.
Still, some smaller resellers, such as Sarcom Inc. in Columbus, Ohio, are planning acquisitions of their own to gain critical mass. Randy Wilcox, president of Sarcom, says the company has "a very aggressive strategy" to grow nationally through acquisitions. "A lot of companies have reached a point where they can't get to the next level," he says. "These are usua
lly $30 million to $40 million companies."
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