Rivals hesitant as Datrontech surrenders

Anyone who has followed Datrontech's recent turbulent history will concede that the decision to call in administrative receivers from Deloitte & Touche was bowing to the inevitable.

Datrontech's principal bank, Hawk Point, has withdrawn its support for the distributor.

The move follows the company's difficulties as a result of ambitious expansion plans, disappointing trading results and a game of management musical chairs, which saw senior staff come and go every few months.

The administrators are concentrating on enabling Datrontech to keep trading while they search for a buyer. A representative of Deloitte & Touche said there is no doubt that the group has value, and it will try to make a sale reasonably quickly.

Steve King, Datrontech's founder who still owns a 24 per cent stake in the organisation, started it up with Kingston Memory franchises in the early 1990s. After its initial public offering in March 1995, King found himself in charge of a firm with a share price rocketing towards 300p, and set about acquiring companies to enhance its market capitalisation.

He then decided that perhaps he was not the person to run such an enterprise and brought in Mark Mulford, founder of Frontline/Computer 2000 (C2000), to do so instead.

Mulford, fresh from having made £3m as a result of selling Frontline, not unreasonably set about creating a mini Frontline in exile, bringing in his former sales director Allan Mack as chief operating officer. This strategy did not work, however, and Mulford appeared to have more than a little trouble with management dissent during his years at the helm.

Finance and franchises
Hindsight is a wonderful thing, though. Datrontech paid too much money for its acquisitions, made a hash of integrating them instead of running them as independent units, and probably had too many managers on overblown salaries.

But the questions now are how much should Datrontech be valued at, and who would want to buy it? Its current financial year does not close until the start of January 2001, and sales for the half year were £84m, on losses of £1m.

The last full set of financial figures showed turnover of £200m and pre-tax losses of £8m. Ideal Hardware was sold for only £30m in May, however, and it was a relatively healthy and profitable business that generated revenues of £300m, profits of £6m and had net assets of £13m.

Datrontech's Microsoft and Intel franchises would certainly be of value to someone. But the vendors presumably have the right to renegotiate contracts, and most of Datrontech's suppliers have already stated that their reseller bases are covered by existing distributors.

Microsoft apparently had no inkling that times were so hard at the company because there was no mention of any difficulties at a meeting between the pair last month. Its Data Connectivity networking business was once quite valuable, although it is perhaps doubtful in the current situation that it would still be worth as much.

Steve Mann, original equipment manufacturer business director at Microsoft, said there were no plans to replace Datrontech. The software giant has five digital signal processor (DSP) distributors in the UK: C2000, Actebis, Enta, Ideal and Datrontech, and contracts are renewed annually around April or May.

And such components still account for most of Datrontech's business - 59 per cent according to the 1999 annual report. Memory sales generated a mere seven per cent of total turnover, networking 30 per cent and services four per cent.

Debt burden
Which leads us to ask, who would want to buy the company? Distributors are not a popular acquisition target these days. It's a cut-throat business with threadbare margins, and the general consensus is that IT products in the UK are over-distributed.

Existing UK broadliners have all the franchises they want, and it's hard to see why anyone would be interested in taking on Datrontech's massive debts just to acquire additional franchises.

There were rumours a few years ago that Northamber was looking to buy the company, but chairman David Phillips was canny enough to have decided to wait and see. Meinie Oldersma, chief executive at Ingram, and Julian Klein, chairman at C2000, have both said they are not interested, but added that they would not mind picking up some of Datrontech's customers.

The most likely scenario is that the organisation will be broken up, with pieces sold in turn to management and foreign buyers. As to which buyers might be sniffing around, components distributors such as Arrow Electronics and Actebis seem to be the safest bets.