FACE TO FACE - THE ONLY WAY IS UP

The top of the tree - that's where Neville Davis, chairman and chief executive of Compel, aims to take the reseller, but first, there's the small task of sorting out Info'Products' problems.

Over the past few months, one reseller has featured regularly in the executive of Compel, aims to take the reseller, but first, there's the small task of sorting out Info'Products' problems. pages of PC Dealer. However, it would be fair to say that Compel would prefer not to read about how former staff of its most recent acquisition, Info'Products, were gearing up to take legal action against the new owner.

Following Compel's purchase of ailing Info'Products - which was losing serious amounts of money - in December 1998, Compel decided it had to take drastic action to turn the fortunes of the company around. That meant redundancies - which, naturally, the staff took issue with and hence embarked on their legal battle. But looking through the history book of Compel's 12 previous acquisitions, the company has never before faced difficult circumstances with any of its takeovers, so will it manage to turn Info'Products around?

Neville Davis, chairman and chief executive of Compel, is understandably vehement that the acquisition of Info'Products was not a mistake. He maintains that while it was regrettable to make the redundancies, the purchase has been a good one and is performing beyond expectations. He is at great pains to point out that Compel did not breach any employment laws when it made the redundancies.

'The redundancies were absolutely key to get Info'Products back on an even keel. Redundancies are always regrettable, but there was no alternative - it was the only way to reduce overheads. But I am very comfortable that we did it in a professional way. We took comprehensive advice and our view is that the situation was properly handled,' says Davis.

'It was unfortunate that we made about 30 per cent of the staff redundant, but the majority of the rest of the workforce has stayed and I can state that there will be no more redundancies.'

So Compel is attempting to put the impending legal battle at the back of its mind and concentrate on its main objective for this year - becoming the UK's number one reseller. This is no mean feat, involving climbing higher than Computacenter which has held the top slot for a number of years. But Davis is adamant when he says: 'Yes, we will be number one.'

He adds: 'In 1987, we were ranked 47th in a UK reseller listing, so our move to the second slot, with the acquisition of Info'Products, is most impressive. While Computacenter is a well-managed business and we respect it as a competitor, we are more focused on services than it is.'

It is this concentration on services that Davis sees as the company's strength. According to Davis, while Compel is growing organically and offering better service levels than its competitors, Computacenter is looking to grow its business outside of the UK.

Interestingly, Davis points to GE Capital as the wild card of the reseller industry. Despite the fact that the US conglomerate has made a number of acquisitions in the UK, he says it is very rare for resellers to come across GE Capital when bidding for the big multinational accounts. 'It is still ranked as a serious competitor, but if it wasn't GE then we would dismiss the threat of it altogether,' he says.

It is at this point you have to ask Davis exactly how Compel aims to achieve its ambitious objective of being number one. Will there be any change to its strategy of focusing purely on blue chip corporates?

Davis suddenly seems quite resigned and embarrassed, revealing that Compel's strategy will, in fact, remain the same as it has been for the past 10 years.

'Boringly, we are going to focus on the user by being a total services provider and giving them a totally integrated service. We don't believe in just servicing the desktop. We provide the total integrated management service, including advice, procurement, support, installation and maintenance. Corporates have outsourced everything to us,' says Davis.

It is this strategy that has caused the City to demand that Compel, as well as other publicly-quoted resellers such as Computacenter, breaks down how much of its revenue and profit actually comes from services and how much from hardware. But Davis takes issue with this demand, claiming that there is no need to split the services revenue as this could misrepresent its figures. He highlights the fact that analysts never ask car manufacturer Ford to break down all the components it uses - such as bonnets and wheels - to find out how much they cost. The City is only interested in how many cars have been sold and whether Ford made any profit in doing so.

Davis also dislikes the way the City compares Compel's performance to the publicly-quoted distributors, such as Northamber and Azlan, as they are product-based organisations. And he is unhappy that Computacenter is lumped in with the big distributors, because he believes that including Computacenter's distribution figures, as well as its sales to the SME market, this is not a comparable basis, because Compel has no distribution outfit and only sells to corporates.

So with Compel's straight-down-the-line focus on corporates, what sort of areas within its existing business is the reseller looking to develop?

The first one that springs to mind is e-commerce. While you won't see Compel opening up a retail Website, it is looking at how to build an electronic interface for its customers to do business more efficiently. Davis admits that Compel is developing a tailored electronic interface for customers that would give appropriate product details and approvals for specific individual needs. This would enable Compel to offer its customers an intranet to manufacturers' sites, where Compel would sit as an interim partner.

'There is a strong movement among corporates for getting service integrators to act as a helpdesk. Our competitors don't have the size or breadth to offer helpdesk services. It is very difficult for smaller resellers which have had a customer for years and then find they can't cope with their demands. Despite the historic relationship with the customer, a good incumbent is dislodged because it doesn't have the right attributes,' points out Davis.

While a lot of distributors are muting the notion of setting up a non-branded box policy, Compel has no desire to play in this market. Davis claims that corporates are just not demanding white boxes. In fact, corporates are looking at a much smaller number of manufacturers, to the point that it comes down to only four players - Compaq, IBM, Hewlett Packard and Toshiba. Davis says that corporates will only entertain doing business with A-brand vendors.

However, there are some trends that Compel will adopt if they take off - channel assembly being one. Davis says that while channel assembly is slowly being recognised in the US, it is not clear yet whether it will work in the UK.

'It works in the US because of the geography, but it is much less clear whether it would work in Europe. There is no need for us to do it now.

If it does work in the US, we can make the necessary investment, but we are waiting a while before we make that investment,' he says.

Davis also highlights the fact that because Compel is a partner in the reseller consortium Global Alliance, it is able to tap into the resources of its US Global Alliance partner to set up an efficient system.

The other trend in the industry which needs a close eye kept on it, is the move by vendors to sell direct. Davis attributes Compaq's decision to sell direct in the US to the fact that the vendor is not happy with its indirect policy. But in the UK, Compaq is happy with its indirect partners and therefore has no real plans to undermine the channel and sell direct to corporates.

Davis says: 'We are not competing against Compaq. It has been less successful in the SME market so it is going direct. I have no problem with that as it can't offer the whole system. IBM and Compaq are manufacturers but can't provide the service integration that customers want.

'There is a potential threat, but we are not worried about it. If it isn't broken, then don't fix it.'

Another area which is likely to affect Compel's business this year is the move by corporates to purchase goods euros. Davis believes the UK has to join the single currency to give it a better chance of aligning the economy with European countries. But while Davis wants to join economic and monetary union, the reseller is experiencing little, if any, demand from the corporates wanting to do business in this particular way.

Davis is also dismissive of the threat of a recession. However, he worries that the UK could hit a recession - though not on the scale of previous ones - simply because the market has talked itself into one. But he claims that none of Compel's clients have held back on their IT purchases.

'We haven't drawn in our horns because of the recession. On balance, I don't see that the recession will happen. Although you have to watch the international sector as it is an unknown quantity,' says Davis.

He adds: 'The City forecasts very substantial growth in 1999 and 2000 for revenue and profit, and we are no less bullish than the analysts in our belief that the market will remain strong. We are out to take market share and Info'Products will add to the figures.'

So with 12 acquisitions under its belt, is Compel looking to make another one? Davis is quick to point out that it is unlikely to acquire any other companies right now as it still needs another three months to integrate Info'Products into Compel's main business. He is also adamant that he is not talking to any prospective acquisition targets at the moment.

'Unless something dramatic comes up, it will be at least another six months. Our history indicates that it would be unusual for us not to make an acquisition. We will continue our acquisition strategy but the majority of the growth will be organic. We are not going to do something new - we are taking market share so why should we?' he boasts.

In June, Compel is due to unveil its financial results. While Davis is keeping his lips tightly shut about what they will be, he indicates that the figures will 'be strong and people won't be disappointed'. Last year, Compel increased its turnover by 88 per cent because of acquisitions, with a 40 per cent increase in organic growth and a 33 per cent rise in its earnings per share.

It is no wonder then that Davis is defiantly upbeat about what the future holds for Compel and whether it can steal the coveted crown of being the UK's largest reseller from Computacenter. But it has to ensure that it does not get dragged down by its impending legal battle with former employees or it will no doubt find itself on the pages of PC Dealer once again.

LANDMARKS IN COMPEL'S HISTORY

Compel was founded in the late 1970s to provide short-term rental of computer terminals to UK companies. It subsequently extended its activities, broadening the product range to include peripherals, commencing the sale of hardware and software, and establishing a maintenance business.

Neville Davis joined the company in 1980, and was appointed managing director in 1983.

In 1986, Compel was sold to Dataserv, a listed Anglo-US computer leasing and services organisation, which was subsequently acquired by Bellsouth.

Compel was primarily acquired for its maintenance operation, which Dataserv intended to separate from its equipment supplies activities.

One year later, Davis led a management buyout of the hardware supply business, financed by the management investment group 3i Plc and Lloyds Development Capital. Under the terms of the management buyout, Compel was precluded from employing field sales engineers to carry out maintenance for two years.

After this two-year period, Compel decided to develop its maintenance activities by making a number of acquisitions. In 1990, it bought the services arm of Xios Systems for its established infrastructure, logistics and engineering capabilities.

In 1992, Compel acquired rival Hill International, a reseller with a strong presence in the north-east of England. The business formed Compel's presence in that area.

The real landmark in the company's history was its debut on the UK Stock Exchange when it floated in September 1994.

It raised #4.5 million cash for its expansion plans, and was valued at about #25 million. The placing was handled by Societe Generale Strauss Turnball Securities.

With easier access to funds, Compel was now able to embark on a number of significant acquisitions which have helped shape its business. The first acquisition was Metrocom, the Milton Keynes reseller arm of distributor Ingram Micro, in 1995. Compel bought the business, which conflicted with Ingram's trade-only distribution policy, for #893,000. This was followed by the purchase of Hamiltons Rentals Group for #14.5 million at the end of 1996. Compel conducted an 11-for-18 rights issue to raise #15.19 million.

Eight months later, Compel paid #1.57 million for Computer Microrentals, a specialist PC rental company supplying predominantly to the training sector in the UK.

Its #4.5 million acquisition in September 1997 of leading corporate reseller Abtex Systems saw Compel break into Scotland for the first time. Compel decided to place a further 1,195,220 shares to raise #2.95 million to partly fund the purchase.

A further acquisition, P&P Rentals, was made in March 1998 to support its previous acquisition of Hamilton Rentals and Computer Microrentals.

In December 1998, Compel made its most significant purchase to date with its #10 million acquisition of troubled Info'Products. Compel paid #1 and assumed #10 million for Info'Products' total liabilities.

Info'Products' net assets were estimated to be #28 million. Compel will raise #3 million with an equity placing.

COMPEL - BOARD OF DIRECTORS

Neville Davis BA, FCA

Chairman and chief executive (age 43)

Davis is a graduate from the University of Kent and qualified as a chartered accountant with Deloitte, Haskins & Sells. He joined Compel in 1980 and was appointed managing director in 1983. He led a management buyout in 1987 and has been chairman and chief executive since then.

Andrew Lee BA, FCMA

Finance director and company secretary (age 41)

Lee is a graduate in economics from Nottingham University. He joined the group as an accountant in 1980, subsequently qualifying with the Chartered Institute of Management Accountants. He became a director of Compel Plc in 1990 and was appointed to the group board in 1994.

William Joss BA

Business development director (age 44)

Joss is a graduate in English and law from the University of London. He has worked in the computer industry since 1978 and has held various sales and senior management positions in IT companies. He joined Compel Plc in 1992 as sales director and was appointed to the group board in 1994. He was appointed business development director in March 1998.

David Frankling

Managing director, Hamilton Rentals Plc (age 45)

Frankling has worked in the computer industry since 1970 and has held board positions for the past 13 years. He joined Hamilton Rentals Plc in 1990 as sales and marketing director and became managing director in 1995. He was appointed to the board of Compel Group Plc in January 1997 following the acquisition of Hamilton Rentals.

Mark Howling BSc

Managing director, Compel Plc (age 37)

Howling is a graduate in civil engineering from Nottingham University. Between 1984 and 1988 he was business systems manager for Mars Group Services. He then worked for three years for Coopers & Lybrand in an IT consultancy management role. He joined GPT in 1991 and became a main board director in 1996, managing its Intelligent Networks division. He joined the Compel Group Plc board in March 1998 on taking up the position of managing director of Compel Plc.