Ingram Micro, a $25 billion distributor of IT-related products, just bought AVAD for $120 million up front, with earn-out payments of up to $80 million over the next three years … even more if AVAD reaches “extraordinary performance levels.”
Holy smokes! I guess Ingram really is serious about the consumer-electronics business.
You can be sure we'll cover the acquisition in depth in the September issue of CE Pro, but here's what I've learned (and inferred) so far based on a brief interview with Ingram president Keith Bradley.
What exactly is Ingram Micro buying?
AVAD is an umbrella organization that helps 12 independent distributors (AVAD affiliates) look like one big national distributor (to the tune of $210 million in sales across 28 branch locations). The affiliates are independently owned and operated, but they share a single IT backbone for operations, they serve as a buying group to get better terms from suppliers, they have a unified marketing program, and they do touchy feely things like share best practices. Ingram negotiated with all 12 businesses … and acquired them all. “We've transferred all assets and liabilities into a separate legal entity,” says Bradley. He admits, it wasn't easy.
What will be the relationship between AVAD and Ingram?
Predictable response: The deal will be virtually transparent to vendors and customers of AVAD. I tend to believe it. Last year, Ingram acquired Nimax, a $73 million (revenues) distributor of automatic ID and data capture systems. That company became a division of Ingram, sharing the parent company's warehouses, ordering systems, IT resources, etc. AVAD, on the other hand, becomes a subsidiary, and pretty much maintains its existing structure — its own branch offices, its own vendor relationships, it's own culture, even its own group-wide ERP (enterprise resource planning) system.
Can Ingram's 165,000 IT VARs now buy custom-oriented brands from AVAD?
Not without going through the same process as any other integrator who wants access to AVAD or its protected brands. That's the party line, and I believe it. Ingram started its own internal CE program in early 2004, and has since invested heavily in attracting and marketing CE lines — but not the more custom-oriented brands that AVAD has. Bradley suggests that traditional IT customers who are migrating to custom electronics will probably start with Ingram's own CE program. For those that get really serious in custom, seek training, and want to go the next level, “then we have a sister company to introduce them to,” says Bradley.
What about Ingram's deal with SmartHome?
In February of this year, Ingram announced a partnership with SmartHome, a distributor of home systems, whereby existing Ingram customers could buy residential systems quickly and painlessly through Ingram's own infrastructure. Bradley says the relationship will remain intact. SmartHome, which offers a variety of mass-market products, is yet another stepping stone for Ingram customers who want to migrate to a full-fledged home systems business by way of AVAD.
Are there product overlaps between Ingram and AVAD?
Bradley doesn't expect there will be many of them. Same brands, yes, but actual products, probably no. The CE-related brands that Ingram carries are more mass-market oriented. “I think as we drill down into subcategories, there will be minimal overlaps,” he says. “If we come across something, we'll work it out.”
Will Ingram stock AVAD products and vice versa?
Becoming an AVAD vendor has been relatively painless. Will it become more onerous now that Ingram is involved?”
“We've met with vendors,” says Bradley. “There will be no material changes under Ingram's ownership.” Hmmm. I can't imagine that it's going to get any easier for AVAD suppliers. Ingram and its multibillion-dollar competitors are notorious for placing substantial demands on suppliers, the likes of which we don't see in our industry.
What does Ingram bring to the table?
Yeah, sure, the sharing of best practices, blah, blah, blah, but bottom line is MONEY. They can help finance new AVAD branches, builder marketing programs, dealer training programs, in short, growth.
What will the org. structure look like?
AVAD founder and president Bob Gartland will be president of the new AVAD LLC, reporting to Bradley. AVAD managing director Joe Piccirilli will keep doing what he's always done as King Schmoozer, heading up business development. The five AVAD principals who serve on AVAD's executive board will become something like regional managers in the new organization.
What does Julie think about the whole thing?
I think AVAD really will look like an independent company as in the past. We'll probably see new branch locations sprouting up, thanks to Ingram financing. Even though AVAD won't join Ingram's ERP system, I suspect the subsidiary will get dramatically more efficient with the help of one of the most efficient distributors on the planet.
I don't think we'll see gobs of Ingram's IT customers flocking to AVAD, nor AVAD's 8,000 customers suddenly taking an interest in computers and networks and other IT things that Ingram sells. I doubt the whole thing will drive the convergence movement. I think distributor ADI, with its 105 branches that sell security and low-voltage gear, will be nervous, and justifiably so, because I'm guessing we'll see lots more AVAD branches out there. ADI's plethora of neighborhood stores has been a key competitive advantage.
I suspect D&H Distributing, the $1 billion-plus “convergence distributor” will also be nervous, but they shouldn't be. The Ingram/AVAD deal doesn't make Ingram any more convergence-savvy than the two companies separately.
The EDGE Group, TAG and startup Digital Delivery Group — all AVAD-like distributor networks — should be thrilled. They should position themselves to be sold either to AVAD or one of Ingram's competitors such as Tech Data or Synnex.