System Builder M&As Are On The Rise
Joe Toste, vice president of sales at Equus Computer, a system builder in Minneapolis, said he believes the white-box share of the market--typically considered to be 30 percent--is shrinking. System builders still have the custom market, but as the large OEMs continue to price their systems aggressively, selling the generic desktop systems of yore is not as viable an option. As a result, some system builders are putting themselves on the market.
"A lot of people are coming to us," Toste said. "We get engaged all the time."
Equus, which topped CRN's list of fast-growing system builders this year, acquired two system builders in 2005: Able Computers with offices in Cincinnati and Portland, Ore., and Tactical Business Services, Crystal Lake, Ill.
Toste said Equus picks up new customers, regional offices and personnel with key skill sets in such acquisitions.
Toste said staffing is an important consideration in its acquisition strategy. Experienced workers are retiring and moving into other industries. "Not only is the industry consolidating, but the people are consolidating," he said.
Similarly, Seneca Data, North Syracuse, N.Y., said it is using acquisitions, coupled with organic growth, to increase buying power and take on new skills internally. For example, Seneca Data Senior Vice President Greg Masingill said the company's July acquisition of Concentric Systems, Alpharetta, Ga., gives Seneca access to new customers, added warehousing, manufacturing capacity and buying power, and Linux expertise.
"Their ability to do Linux and some clustering was appealing to us," Masingill said.
While revenue for desktops is "relatively flat" because of lowering average selling prices, Seneca sees increased opportunities in server sales, where Linux continues to gain traction. "We are seeing 30 percent year-over-year revenue growth in servers while desktops are single digit," he said.
In general, Masingill believes the industry is witnessing a continued maturation process. "The ability of small companies to run their organization in an efficient and cost effective way is becoming prohibitive," he said. "They do not have the economies and buy in to bring cost down per unit and manage the labor pool in a cost-effective way to meet customer requirements."
Though terms of the Concentric acquisition were not revealed, numbers reported in the CRN Fast Growth system builder report indicate the combined companies will create a $116 million custom systems powerhouse with annual shipments of more than 81,000 units.
Still, another system builder that acquired a struggling company earlier this year, said there have been acquisitions in the channel for years. The system builder, who requested anonymity, said this year hasn't been any different than prior years. He points to high-profile deal such as Hewlett-Packard acquiring Compaq Computer and Gatewaynow struggling itselfbuying eMachines as evidence of aggressive merger and acquisitions in the past years. "This isn't anything we haven't seen before," he said. "Our business is better than ever."
Still, he acknowledged that lower average selling prices on desktop systems has made that market more difficult. Those offering differentiated products and custom options are seeing the most success.