SCH scores in Qudis last resort sell-off

Qudis has turned out to be SCH?s Christmas cracker as the companies sealed an eleventh-hour deal

Wrapping up a deal on 24 December was not how SCH?s senior managers planned to spend their Christmas. While others were putting their feet up at home, SCH and Qudis were sat round the negotiating table. According to ETC managing director Paul Simpkin, the deal was still being thrashed out at 1:30am on 23 December. Details were being faxed to the managing directors of Qudis suppliers, Tom Lloyd of Lexmark and Jed Thompson of Hewlett Packard, at home on Christmas Eve afternoon to make sure everything was finalised. What had started as a phone call from Qudis at the beginning of December ended with an acquisition which was signed in just two weeks. Several factors contributed to what amounted to an emergency for the distributor. It is understood that the hopes Qudis had that it would be saved by an influx of cash from a US investor were dashed after discussions broke down just before Christmas. At the same time, major suppliers which had supported the distributor through the years became fed up with Qudis? inability to pay bills and finally stopped delivering product. Hewlett Packard and Xerox, Qudis? main suppliers, were reportedly owed more than #1 million. Faced with little product and no money, things had come to a standstill. Simpkin said: ?It was a frustrating time for the sales staff because they had no stock. They were answering phones and taking orders but couldn?t fulfil them. The past few months have been a downward spiral for the company.? What was once a distributor had been fast becoming an empty warehouse. In a last ditch attempt to be rescued, Qudis managing director David Ives phoned SCH, after reportedly rejecting an offer in June, saying he was ready to do a deal. Qudis? downfall has not come as a surprise to most as the distributor has been in trouble for the past few years. The figures reflect the company?s financial problems. In 1994 it reported a loss of #911,000 which included a shareholders? dividend of #138,000 on a turnover of #72.5 million. In 1995 Qudis fell further into the red after reporting a loss of #1.3 million on half the previous year?s turnover ? #37.8 million. This was despite a major restructure at the beginning of its 1995 financial year (PC Dealer, 1 June 1994) where it made 11 people redundant and remodelled itself as a high-end distributor after failing to compete against rivals. At the time, then managing director Rob Jefferson was quoted as saying: ?Our focus is changing since Merisel, Frontline and Ingram have taken some of our Hewlett Packard printer business ... We?ll still be here in years to come.? (PC Dealer, 1 June 1994). The only surprise, according to one source, is that it managed to keep going this long. It seems Qudis never had enough money to survive. According to the source: ?Hewlett Packard has been propping up the company for the past two years. ?The directors put so little money into it after the management buyout and [venture capitalist] 3i had to put so much in that none of us could see how it could pay it back and still survive. Qudis became more and more niche because it couldn?t survive against the big boys, and it all went downhill from there.? The story is a dismal one for Qudis but not for SCH. Simpkin explained why the acquisition made sense for the group by putting it in the context of the Data Translation purchase (PC Dealer, 30 October 1996). ?We originally looked at Data Translation and Qudis in June. We looked at one firm in the morning and the other in the afternoon. From the very first our directive for the year was to get into networking. ?We liked the skills we saw at Qudis but our first choice as a networking distributor was always Data Translation.? He said that nothing more was thought about it until the call from Ives in December. Other sources suggest there was more careful planning involved than Simpkin?s comment suggests and that SCH was ready to wait, following the initial rejection, until Qudis was prepared (and desperate) to do business. Although the terms of the deal were not disclosed, it is thought that SCH didn?t pay much for the company, which it bought for its server business and Hewlett Packard skills, except what it needed to keep suppliers happy. Although the suppliers did not get all their debts covered, most have expressed relief at the outcome. Ian Miles, general manager for computer products at Hewlett Packard UK, said: ?They were certainly looking for additional finance and there were always a number of suitors, but the longer it dragged on, the more nervous the employees felt. It has been a long haul but we are happy that Qudis has found a good home.? Lloyd was also pleased. ?They were in trouble and hopes of getting with the US investor meant they had little time to sort it out. We could have worked our way through it, but this is the best of both worlds, although it did cost us some money along the way.? SCH has acted as the saviour twice in the past four months, seeming to make a habit out of rescuing ?disties in distress?. It has boosted its base in the south while developing its networking distribution business with the apparent ambition of rivalling Azlan and Persona. In addition, Ives has secured a future for his company. A Christmas bonus for all perhaps, that is, until SCH pursues its new year?s resolution of being more efficient by ?examining areas of cost-savings?.