CRN: Greg, why did Ingram buy Tech Pacific?
Spierkel: The team here was very good -- in the region. [They] had a good track record operating in seven countries.
First and foremost, what I liked was the management. I spent a fair bit of time with five or six of the executives, I felt good about business practices, the thoroughness of the team, the sustainability of the profit streams that were in play. That was the biggest deciding element for the acquisition. Second one was the good complement between what we have at Ingram Micro with vendors and what Tech Pacific had -- there was not a lot of overlap of customers and vendors. Maybe a bit more so here in Australia but a lot less so in India, Malaysia, Thailand, Singapore -- completely diverse businesses.
We anticipated that there was going to be some overlap of vendors and customers here and in Singapore but beyond that there was very little.
Keeping in mind the genesis of Ingram Micro in this region primarily was Electronic Resources (ERA), which was a components play. I was involved in that [acquisition] when I was living in Singapore. We made another small acquisition here in 1999 [Melbournebased ITG] so I know the Aussie market pretty well because of that.
The third factor was that I’m very familiar with Asia -- I’ve lived in Asia for five of the last 15 years and I’m a real believer in this market long term.
Australia and New Zealand are mature markets, natural resource-based economies, but there’s still a fair bit of money from India and China that’s going to continue making its way here. But more importantly India and China are the future for IT in many ways and through this acquisition we were getting an incredible position in India and Tech Pacific were fighting for number one position [there]. I’m very happy about our current state of affairs in India, which is a very important long-term market for us.
The final thing from a Wall Street point of view was that [the acquisition] was generating incremental additional profit for the company even though the cost was loaded in.
CRN: It’s a very different acquisition compared to the ERA and ITG acquisitions in the late 1990s. Do you agree that Ingram has struggled since then?
Spierkel: We didn’t do as well as we would have liked. The business grew but it didn’t grow as profitably as we would have liked. It had fits and spurts -- one year profitable, one year losing money. Over that five to six year window it was inconsistent. There were some good competitors here, namely Tech Pacific. I’m very happy about where we are now though and how the teams have come together.
CRN: Are you happy with the way the integration has gone so far?
Spierkel: Excellent. We’re tracking to plan or ahead of plan everywhere in the region. In less than six months we have integrated all IT systems in seven countries. We’ve virtually collapsed all the warehouses and offices.
CRN: Is Asia-Pacific your most important market?
Spierkel: Long-term yes. I’ve stuck my neck out for Ingram Micro in this region. I got us on the map here to begin with. If you look five or 10 years out, if our largest operations are not in Asia, I will be disappointed. We’re on a run rate for US$5 billion plus in this region this year and we’re approaching 18 to 20 percent of our revenues coming out of Asia-Pacific. That’s quite a change when we first came out here seven years ago, it was nothing.
CRN: Australia/New Zealand are not big markets. Do you think there is enough room for three big distributors, namely Ingram, Synnex and Express Data?
Spierkel: Yes I think there is. Clearly vendors want a choice and at the end of the day I’m not foolish enough to aspire to believe that we won’t have competitors -- they keep us sharp, aggressive and innovative so in that sense it’s good. Yes you can make a case that Ingram could serve the market with one other major competitor, and we would adequately serve the market, but I would say that the vendor community likes having choice themselves. I do believe three broad-line players in a country of 20 million is not unrealistic -- it’s a big enough IT market, there’s reasonable growth.
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Spierkel: As much as we are viewed as a broad-line organisation, we have put a huge amount of focus in the company over the last few years to have speciality divisions throughout each operating area, especially as the market changes to solutions as opposed to time and place and pick and pack. We have to execute flawlessly on that and on a global level I don’t think anybody does a better job than us in at least the fundamentals of the business with our systems/capabilities and best practices that we are sharing. We’ve got an incredible number of divisions, whether it’s licensing desks and the solution base that you need there -- the technical expertise to really understand how the applications work through to enterprise solutions through to networking. We are by far the largest networking vendor in the world. Most of our competitors, Express Data, Comstor, Westcon or Tech Data ... people don’t see it but Ingram Micro has got very focused divisions on that. We wouldn’t be successful with the system integrator, vendor and customer community if we weren’t executing well. We garner better margins in solution-based divisions than we do with basic commodity products. You have to do that to compete and provide more technical support to be successful.
| Resume: Greg Spierkel |
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Spierkel: We made an acquisition two weeks ago in the consumer space -- all value-add solutions. [Ingram acquired Avad, a US-based home control and electronics distributor]. [The market can have] $30,000 to $50,000 or more as a typical sale where people are buying a server, software and middleware for home entertainment solutions. In cities like Sydney and Melbourne with four and three million people is a huge market, there’s a lot of disposable income, so homes of $1 million, which are a dime a dozen around here, what’s another $30,000 especially if someone’s buying new or upgrading their home? It’s a whole new area of focus for us and that’s all value-added. It’s not taking your basic television and [adding] in a box video system – they are complicated solutions with double digit margins.
CRN: Do you think other smaller niche distributors in this country will suffer because of this acquisition?
Spierkel: Over time probably. It’s one of those things -- if their scale and capabilities don’t continue to provide the service level expectations and the price/points that we can put out, they will suffer. That’s not to say we’re going to do well in everything that we do. There are some divisions in some countries that frankly, we struggle. What vendors are seeking and what customers are seeking are two things: reliable service and good price and a technical knowledge base. If you’re not profitable through product transitions to competitive situations, over time some of these companies start cutting back and find themselves behind the eight ball. That’s when the business is likely to come to us and because we have a broader portfolio, it does protect us. Sometimes a technology or customer category is not doing all that well but we’ve got enough in the portfolio to carry us through the day and we don’t see the ups and downs. The diversity in this company is phenomenal right now -- it’s providing us a lot of protection against soft pockets of the economy or soft pockets of technologies.
CRN: What are the other areas of growth for the company?
Spierkel: Everything in the wireless domain. We’ve signed Orange, Vodafone, T-Mobile on worldwide contracts with 3G services. We’re bundling hardware, software, middleware, carrier solutions combined to provide GPS applications, navigation, tracking and POS applications. We’re putting all those pieces together and the carriers don’t know any other way to go to the SMB market. Where there’s complexity there’s opportunity. Convergence, CE, storage will continue to be huge... But we are investing in ourselves through acquisitions or adding talent to the organisation.
CRN: Are you interested in any other distributors here in Australia?
Spierkel: No...I know them all...But no, we’ve got a strong position here, we’re focused on the consolidation of the two operations.
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