Action Computer Supplies' acquisition by Insight Enterprises for £92 million last week was seen as a continuation of a US channel invasion.
But it also raises questions over the future of UK mail-order players and who will be the next bride for the courting US giants.
The trend of US operations seeking UK companies as European footholds is an established pattern. However, the question arises of whether a mid-range player in the UK needs to have a US backer to be a player in the future.
As exclusively revealed in PC Dealer (24 March), it first came to light that Insight was the front runner to pick up the Action operation. The announcement of the deal marked the US company's second acquisition in a bidding war that has continued to rage in the channel.
The £92 million deal is the latest and largest in what some analysts see as an auctioning off of the UK's mid-size, mail-order operations.
Insight and its main US rival, Global Direct Mail, have rapidly extended their battle lines into the UK. Prior to 1998, Insight was only based in the US - 12 per cent of its turnover now comes from Western Europe.
Last year, Insight acquired Choice Peripherals and Plusnet Technologies (PC Dealer, 15 April 1998) and Global acquired Simply Computers (PC Dealer, 10 February) to bolster its previous buy, Misco. Other targets have included Dabs Direct and Software Warehouse.
The attraction of UK acquisitions for these titans is clear. Apart from the cultural similarities, the UK market is not yet a mature Web-based sector. E-commerce has become the cornerstone of many US retail operations and they want to bring that power to bear in Europe. The mail-order players are particularly suited for acquisition simply because of the shared characteristics between mail-order and e-commerce models.
However, analysts are of the opinion that the domestic UK giants are keeping a close eye on these developments and could put their foot down on allowing US companies to come over here to buy more UK operations.
Richard Dyett, analyst at Investec Henderson Crosthwaite was reported as saying that although 'Action is not a glamorous business, its management knows the costs of its operation to the nearest penny.' He speculated that Dixons or Computacenter could be interested in putting forward rival bids to stop Insight.
Peter Whiting, analyst at Williams de Broe, added: 'Action's customer base stretches from domestic to corporate users and Dixons and Computacenter would only be interested in particular parts of the business.'
However, Phil Williams, head of corporate marketing at Computacenter, seemed unperturbed: 'We've known that Action has been up for sale for a while. I don't think the move will threaten Computacenter in Europe.'
Insight and Global are courting the channel - they are the first US electronic specialists heading for the UK and, as analysts and industry watchers have said, many UK companies will sink or swim. The larger players are already covering bases - Dixons' development of Freeserve and its online superstore is, apart from a being a big money spinning operation, a good way to gauge public willingness to buy over the Web. It also positions the company as a Web retailer.
Action's experience in the e-commerce market was a factor for Tim Crown, president of Insight, for purchasing Action. He said: 'Action, led by its existing executives, will be our platform for further sales force and e-commerce expansion into Europe. The transaction catapults Insight to the next level. It represents the continuation of our strategy to expand our customer base and geographic scope in important markets. This is our largest transaction and provides us with critical mass in the UK.'
The added incentive for Insight was that Action became the industry bargain buy following its profit warning earlier this year. Its share price was pushed down to a 1999 low of 188.5p at the end of April. Action's price has since rocketed to 247p following the Insight deal - 1.5p short of the 1999 high.
The result of the deal will be the death of the Action brand. Henry Lewis, chairman of Action, conceded the name could be replaced by the Insight brand. However, he was clear about Action's ambition: 'We have been approached by a number of companies over the past five years - this is the best fit.
The combination of Action and Insight will create a genuinely global group with extensive customer bases in five countries and nearly £1 billion in turnover.'
Whether Dixons, Computacenter or another player in the UK channel put forward a rival bid to Insight's, the Action deal is obviously the start of the US players eyeing up the UK more closely. It would seem if any reseller wants to cash itself in, now is the time.
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