Acquisition Will Include IE's Configuration Capabilities, a Key Move As Ingram Beefs Up Build-to-Order Offerings
MANHASSET, N.Y., April 29 /PRNewswire/ -- According to a report posted on the Computer Reseller News Web site today (http://www.crn.com/), Ingram Micro Inc.(NYSE:IM)
, tomorrow will announce plans to acquire the distribution business of Intelligent Electronics Inc.(NYSE:INEL)
, for between $70 million and $90 million, said sources close to the deal.
"The deal adds another $3 billion to Ingram's $12 billion revenue stream and makes Ingram Alliance Reseller Co. a more powerful force in the cost-plus business. Ingram Alliance recently said it is on a $2.7 billion run-rate," write Computer Reseller News Section Editor Eric Hausman and Associate Editor Jeff O'Heir in the report. "The acquisition will include IE's configuration capabilities, which is critical as Ingram Micro and its competitors race to ramp up their build-to-order offerings."
Hausman and O'Heir also note that Ingram Micro will also acquire IE's Intelligent Systems Group, which consists of independent resellers working to serve large accounts, the kind of group Ingram Micro has been trying to build on its own.
The report includes reactions and observations from Channel players and analysts, including:
-- Dan O'Brien, Vice President of PC Wholesale, a Bloomingdale, Ill.-based distributor: "I think Ingram (Micro) is looking to stabilize pricing. Whenever a player that is in financial difficulty is eliminated, overall margin should increase."
-- Kevin McCarthy, Vice president at Donaldson Lufkin and Jenrette Securities Corp., New York, said: "Anytime you take out a weaker player that was perhaps causing some margin erosion, it's a net positive."
Hausman and O'Heir's report also focus on the effects this deal will have on Ingram Micro's position in the market. "Channel executives have maintained that IE has sold systems from the leading vendors at near or below cost, resulting in intense pricing pressure in the channel," they report. "The acquisition also would give Ingram Micro more leverage with top PC makers, executives said."
The report notes that for the nine months ended Nov. 2, IE generated $2.4 billion from its distribution business and that last year, 24 percent of IE's sales came from Compaq. Ingram Alliance already is Compaq's biggest customer with more than $1 billion in sales.
In terms of changes at IE, "It is unclear what will happen to the remaining pieces of IE's business. The company has been shopping its direct arm, XLSource, sources said," the report points out. "Resellers suggest IE could take the cash from Ingram Micro and continue with its strategy to buy resellers and build a company-owned integration business similar to Vanstar Corp. with its service subsidiary, XLConnect Solutions Inc."
CRN Online goes on to say that IE is expected to reveal its plans to resellers at a dealer advisory council meeting in Denver later this week. In addition, the distributor is arranging another meeting with top dealers, to be held in early May.
"It also still is unclear how many of IE's employees will lose their jobs, although sources said the layoffs probably will be significant," Hausman and O'Heir write.
Additional reporting says that, "The deal marks the end of an era for IE, which pioneered the cost-plus distribution model that dominates the industry today. Only several years ago, IE was considered one of the most powerful players in the channel. The deal further solidifies Ingram Micro's position as far and away the dominant distributor. When asked if the deal would make the company too powerful, O'Brien said, "What is too powerful? I think they will have a bigger stick with manufacturers."
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