Agilysys To Go VAR Shopping

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With $485 million in cash on the way from selling its KeyLink Systems Group distribution business to Arrow Electronics, Agilysys plans to shop for VARs.

Agilysys executives said they're ready to seek acquisitions to help grow the Boca Raton, Fla.-based solution provider from $500 million in annual sales to $1.5 billion in the next three years. Agilysys expects to have about $340 million after the KeyLink sale is taxed, which combined with its cash on hand will give the company $440 million to acquire the solution providers it thinks will help spur growth and take the business in new and profitable directions.

"When you look at our financial position, we certainly are uniquely positioned within the reseller community given that kind of financial flexibility. One could argue we look more like an equity firm given the size of our investment capability," Chairman and CEO Arthur Rhein said.

Agilysys aims to reach into new vertical markets plus expand its enterprise solution provider business, according to Rhein. "The reseller community is a fragmented industry, and historically we've looked at companies that had unique elements to them," he said. "We certainly look for people who have some form of unique or proprietary software offering, as well as [those that] may call on a specific set of customers."

And Agilysys won't be severing its ties to KeyLink, even though it will no longer own the distribution business. The solution provider has a long-term procurement agreement with Melville, N.Y.-based Arrow to buy products from the distributor.

Plans call for Arrow to take possession of KeyLink's operations in Solon, Ohio, and Alpharetta, Ga., employing 440 people. Agilysys is slated to relocate employees to its own facility in Solon and keep its data center in Garfield Heights, Ohio. KeyLink's management teams also will move to Arrow.

While a $500 million solution provider business is no small operation, Cleveland-based KeyLink is a $1.3 billion business and Agilysys decided its future was in solutions, Rhein explained. After the divestiture of its electronic components business in 2003, Agilysys grew its distribution and solutions divisions.

"However, as we looked to the future, there was contention regarding the ability to invest in both businesses," Rhein said.

Namely, KeyLink's solution provider customers were in competition with Agilysys' solution provider arm, he said. "Distribution is ultimately a business of scale. Certainly, Arrow has it and has the ability to, in essence, along with KeyLink, become part of that and ultimately fulfill its potential as a distributor. It gives us the ability to fulfill our potential as a solution provider."

Rhein added that he's confident that will happen. "This is not new to us. We understand how to redeploy assets, and we expect that we will be even more successful in the future than we have in the past, given the increased flexibility," he said.

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