Last week PC Dealer reported that Ingram Micro was planning to buy a majority stake in UK distributor Northamber. If the deal takes place, it will effectively split the UK distribution market between two foreign-owned giants, Frontline Distribution and Ingram, leaving them to battle for supremacy in the UK.
Sources said last week that Northamber chairman David Philips was planning to sell his majority stake in the firm and US mega-distributor Ingram was to buy the 51 per cent share.
The deal would make Ingram the biggest distributor in the UK, overtaking Frontline, which had a 1995 turnover of u430 million. The combined turnover of Ingram and Northamber is believed to be u520 million in the UK, although there will be some overlap to reduce that figure. Such an acquisition would not only signal the end of Northamber as the biggest UK-owned distributor in the country, but would also leave the market dominated by two huge firms. In that case Merisel, which according to sources had a turnover of around u209 million in the UK in 1995, would be around half the size of Frontline or Ingram.
IBM distributes through both Northamber and Ingram. IBM UK channel sales manager Steve Voller said size is important to distributors. 'Ingram in particular has been very aggressive in the market as it is the new kid on the block. But if this deal is to take place it will need to have done its homework and have found a synergy between itself and Northamber.
Size isn't everything,' he said.
Graeme Watt, joint MD at Frontline, said that he would be surprised if size prompted the deal. 'Northamber is an excellent company with a well-established hardware market, particularly in PCs and servers,' he said. 'Ingram is not as strong in these areas.' Watt denied that any deal between Ingram and Northamber will affect Frontline. 'It would merely be a consolidation of our competition.'
Voller said the amalgamation would be unlikely to affect vendors, but agreed it would have an impact on dealers. 'One of the trends in the past two years has been a fall in dealer loyalty. Most dealers trade with at least 10 distributors, because that way they get multiple credit lines, multiple avenues of supply and they're not putting all their eggs in one basket.
'If Ingram Micro does take control of Northamber it will combine two of those avenues into one and reduce the options and number of credit lines for the reseller. To maintain the status quo the reseller would have to sign up with another distributor.'
One reseller source agreed: 'Dealers that play the credit game will find they have much less credit from Ingram and Northamber combined than they did when the distributors were separate,' he said.
'It will help some of the independent distributors because Ingram cannot handle that much credit alone. There will also be an opportunity in consolidation as there is a product overlap of around 40 per cent between the two companies which Ingram cannot take on.'
Ingram has admitted that it is involved in acquisition talks with several potential partner companies, but said it is unable to comment on specific deals due to stock market regulations connected to its initial public offering.
The US firm, which is the biggest computer distributor in the world with a 1995 worldwide turnover of $8.6 billion, said it will raise $263 million from the offering.
Northamber also refused to comment on the alleged deal, but a source close to the company said: 'A lot of people within Northamber are saying that David Phillips wants to retire this year and will sell his share of the firm.'
While Ingram is trying to increase its share of the European market, German distributor Computer 2000, which owns Frontline in the UK, has tried to do the same in the US.
C2000 is number one in Europe, while Ingram is number one in the US and worldwide. But the German firm's attempt to break into the US market has been unsuccessful.
The company bought Ameriquest in November 1994, but it has proved to be a millstone around the company's neck. Ameriquest reported a loss of $68 million for the year ended 30 June 1995, and is still losing money, having posted a $22.4 million loss in the first three quarters of 1996.
C2000 blamed the restructuring of Ameriquest for its poor financial performance and admitted that the firm is unlikely to pay a dividend for its year ending 30 September.
Ingram has proved more successful in Europe than C2000 has in the US, and the rumoured acquisitions of Northamber and Merisel Germany would increase its European market share in two countries where C2000 dominates.
But the German and US domination of the UK broadline distributor channel does not indicate a weakness in home-grown distribution companies, according to Joe Hemani, MD of Westcoast, another UK-owned wholesaler. 'My company, Ideal Hardware, Datrontech and Micro Peripherals are still there and Northamber is at a stage where other factors dictate,' he said.
'This deal would not be a question of a company in trouble that was forced to sell but a case of individuals wanting changes at a time that is right for them.'
Whatever the reasons for the deal, it would certainly escalate the battle between distributors in the UK. With C2000 and Ingram fighting for control of Europe, the Ingram and Northamber deal would mean that the battle could be won or lost in the UK computer market.
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