Action acquisition does not suit strategy

The £1.73million paid for Fraser Associates has made one man rich, but will it pay off for Action?

'The telephone call from Action came out of the blue,' Harryde one man rich, but will it pay off for Action? Thuillier, the chairman and founder of Fraser Associates, recalls. 'I had already looked at selling perhaps 20 per cent of my shareholding to venture capital, allowing me to bank a little. But in talks with Action, it quickly transpired that Fraser would get most out of potential synergies if it were wholly owned.'

Thuillier told me this in response to the announcement that Fraser Associates had been purchased by Action Computer Supplies (PC Dealer, 5 November).

Now he is able to bank a rather more substantial proportion of his assets.

Action is paying £1.73 million up-front, in cash. The balance will be payable as £1.38 million in cash over the next 18 months and an employee two-year earn-out, funded through Action shares worth £348,000. In return it gains a £33 million turnover business and the opportunity to delve deeper into value-added waters.

'I could have carried on playing,' Thuillier says, 'but Fraser outgrew me. The company was much bigger than just me and I wanted to ensure I didn't hold it back.' He expressed delight that the company remains in good hands, namely the Action board, and mostly with the same directors as previously. Fraser will run as a standalone unit.

For the time being, Thuillier will stay on at Fraser, working on systems-related projects. I expect though that he will move on - possibly before the earn-out completion.

So what is in it for Action Computer Supplies? The company has comfortably leapfrogged over the £200 million turnover mark, with Fraser on board.

And the price paid for Fraser Associates looks realistic all round.

In the year to 31 July, Fraser declared a £448,000 operating profit on sales of £32.8 million - a piddling net margin of less than 1.4 per cent.

Profit should rise this year for three reasons: Fraser can tap into Action's buying and logistics power; the company has hacked back low margin distribution activities, which now account for just nine per cent of sales; and as the subsidiary of a publicly-quoted company, it is now Fraser's duty to up profits. In due course, Fraser could even offer some services through Action's catalogue.

Historically, Fraser is best known as a distributor. It has flogged Mitsubishi kit to the trade since the dawn of time - nowadays, that is all it distributes.

AST and Toshiba were canned before the last financial year. Graham Mackie, Fraser managing director, said the company has more than replaced lost distribution turnover by releasing sales people into user sales.

But just how strategic is Fraser for Action? Duncan Wilkes, Action CEO, denies the purchase will take the company into deeper value-added territory.

Scale is the key to the purchase in his books. 'Our stated intention is to grow to £500 million in the UK, and acquisition is a key part of this.'

'We assume our customers have already worked out their business problem.' Currently, it is doing nine per cent of its business online, up from three per cent in 1996.

This is not Fraser's model, which is why the acquisition looks a little surprising.

Drew Cullen is a freelance IT journalist who will be writing a regular column for PC Dealer.