READ IT!!!!!!!!!PIOS and KNT shareholders
July 12, 1999, Issue: 1168
Section: Viewpoints
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Distribution and the urge to merge
Matthew Sheerin, Editor In Chief
If you think Avnet's blockbuster move to acquire Marshall Industries is the last we'll see of megadeals in this ever-consolidating industry, you can forget it. The move clearly put the two members of the "A" list, as EBN's Barbara Jorgensen terms it, in a league of their own. Avnet and rival Arrow will now share more than 45% of the North American electronics distribution market, and each will be able to fulfill 75% of an OEM's bill of materials.
That's tough competition for a billion-dollar distributor trying to win a major account by flashing a particular product line or specific value-added service. The A players have it all covered.
As executives from those second- and third-tier distributors accurately noted, there are plenty of ways for them to differentiate themselves and efficiently cater to the needs of many OEMs, large and small. And certainly, some OEMs will prefer the attention of mid- and large-sized distributors that have a particular expertise in, say, engineering support and design services. Both Avnet and Arrow are competing against distributors of all sizes by setting up various units. Some contract electronics manufacturers that deal with Arrow, for instance, are supported by the company's CEM unit. Arrow and Avnet argue that these specific groups give customers appropriate attention, as well as better pricing and service due to the enormous line card and volume of business at the corporate level.
This is a key point given the extreme margin pressures that distribution is under. The prized OEM accounts are increasingly forcing their resellers to cut their margins, and only the most efficiently run companies can profitably survive in such an environment.
So wouldn't it make sense for a couple of billion-dollar distributors to merge? Sure would. The challenge, though, is finding the right fit. That's especially difficult given the dwindling number of acquisition candidates-easily fewer than 10, by my count.
That's probably why the smarter executives in the business are trying to make a case for the midsized distributor through specialization. Nu Horizons is a fine example of that. The distributor, which reduced its line card from 52 to 30 suppliers, has seen double-digit sales growth and a strong increase in net margins.
Nu Horizons aside, you can expect to see lots more M&A activity in the next few months.
Speaking of distribution, I hope you'll find some useful information in our special supplement this week, which profiles dozens of Web sites involved in component distribution. |
