Despite being little more than a quarter of the way through the year, it is safe to say that Bell Microproducts has enjoyed an eventful 2010 so far.
Thing started well, back in January, when the distributor had its shares relisted on Nasdaq, two years after it was suspended. The suspension was part of a chain of events that started when Bell Micro discovered accounting irregularities dating back to 1996, prompting a costly investigation that led to the distributor losing its place on the US stock exchange.
Within two months of being relisted, Bell turned in significantly improved fourth quarter figures, showing a 9% increase in sales to $837m (£542m) and a profit of $12.9m (overturning a $33.5m loss in 2009). The figures also showed the strength of its European business, with sales in Europe growing 14% to $351.7m, just behind US sales of $354m.
At the time, CEO Don Bell greeted the improved figures by stating: "It seems like it has been an eternity, but only one year ago the economy and the IT industry were in a downward spiral that had not yet bottomed out. Since that time not only has the market recovered, but Bell Micro has put its restatement issues behind it and is in a much better place going forward."
Sale follows success
Just under four weeks later, on 29 March, Avnet announced it was acquiring Bell Micro in a deal valued at $594m. Avnet CEO Roy Valee professed to be excited about the opportunity to build additional scale and scope in storage and computing solutions, as well as increase its presence in the fast-growing Latin America market.
He claimed Bell's position in datacentre products and embedded systems complemented Avnet's strategies and created opportunities for cross-selling.
"Bell's position as one of the leaders in hard disk drive distribution substantially increases Avnet's exposure to this product segment, which is currently focused on embedded computing," he added. "In support of our focus on value-added solutions distribution in North America, we intend to explore strategic alternatives for the single-tier reseller business."
It was noticeable that he did not mention Europe or the UK, but the acquisition also brings HP's ESS range to Avnet in the UK to sit alongside its IBM and Sun business.
As Alastair Edwards, principal analyst at Canalys, points out, the addition of HP to Avnet's line-up comes at a good time, given the uncertainty following Oracle's decision to take key Sun accounts direct. Avnet has been a long-standing Sun channel partner, and as Edwards told MicroScope when the Avnet/Bell deal was announced: "Oracle taking stock out of the channel is a big threat to distribution and Avnet is vulnerable having invested heavily in Sun."
Three weeks later, his view has not changed. "The focus on Sun must be a concern for Avnet," he says. "[Bell] gives Avnet additional focus on other parts of the business. It is an opportunity. HP is becoming an even more interesting proposition for Avnet because it is now a cross-portfolio enterprise vendor. Cisco, HP and IBM are the three main columns of the enterprise market. Avnet is now in a strong position with IBM and HP."
Benefits of Bell buy
In addition to HP, Edwards believes there are a number of positives for Avnet in the UK from the acquisition of Bell. As well as bringing in other vendors, such as Symantec, Net App and Microsoft, Edwards also suggests the Bell management team in Europe, most of whom are based in the UK, is "very strong".
He says other distributors are likely to use the integration process as an opportunity to try to take advantage of Avnet, and it will be a question of how effectively Avnet can manage the integration process and maintain momentum in the market.
But he also believes that longer term it will be of concern to some of the distributor's competitors that it is focusing its strength and size on new markets. Unlike rivals such as Tech Data and Ingram Micro, Avnet has elected to go for a large global acquisition rather than buying companies at a country level to build up expertise at a regional level. Nevertheless, the Bell Micro deal, on the surface, "appears to be quite a strong fit".
One of the first things Vallee said to financial analysts in the immediate aftermath of the deal was that Avnet would seek to achieve savings of close to $60m from "expense synergies", adding that reductions were likely to come from sales, general and administrative expenses. It will be interesting to see how this is achieved in a way that does not affect the overall sales engines of both businesses during the integration process, especially as the Avnet CEO admitted in the same teleconference that it had not yet developed detailed integration plans.
Given Avnet's track record in buying businesses - it has been pretty aggressive over the years, buying Access Distribution in 2006, the Magirus IBM and HP EMEA distribution business in 2007 and UK and Ireland Sun distributor Horizon Technology in 2008 - it is likely to be reasonably confident about handling the integration of Bell, even if it is the biggest deal of them all.
From a reseller perspective, there may be concerns that such a consolidation could suck credit out of the channel at a time when it can ill-afford to lose any more sources of credit, but Edwards does not think it is such an issue because he believes Avnet's strong financial position could strengthen Bell's position in some markets.
Perhaps, but it remains to be seen how the credit position plays out.
More importantly from a UK and European perspective is the emphasis Vallee placed on the US and Latin American aspects of the acquisition. It raises the question of what value Avnet places on Bell's European and UK businesses. They did not seem to be Vallee's main priorities when the deal was announced, but any operation which contributes 42% to overall group sales, as Bell's European business did in the distributor's fourth quarter, cannot be ignored.
Things are likely to continue to be eventful for Bell for some time to come.