Ingram Micro Acquires Avad

Jul 19, 2005 8:00 AM

Ingram Micro has announced a significant advancement of its consumer electronics strategy with the signing of a definitive agreement to purchase certain net assets of Avad, a privately held alliance of 12 companies employing 280 people throughout the United States.

The cash transaction, expected to be accretive to earnings in 2005 and 2006, is scheduled to be completed later this month, subject to customary closing conditions. The purchase price includes a $120 million up-front payment, subject to a final determination of net asset value, and earn-out payments of up to $80 million over the next three years if certain performance levels are achieved. Additional payments are possible in 2010 if extraordinary performance levels are achieved over a five-year period.

Ingram Micro will not acquire Avad's cash on hand, long-term debt, or other business liabilities as part of the purchase. Ingram Micro will fund the transaction with existing borrowing capacity and cash; the acquisition will have no material impact on the company's ability to meet compliance requirements under its financing agreements.

"This acquisition accelerates our consumer electronics initiative and provides another key platform for growth," says Greg Spierkel, CEO of Ingram Micro. "We view this as an opportunity to further differentiate Ingram Micro and enter a profitable and growing new market. Technologies for the home are becoming more complex, often requiring sophisticated experts to install home automation and entertainment. Avad is one of the only meaningful distributors for custom installers in the consumer electronics and home automation space—it is the far-and-away leader."

Avad reported sales of approximately $200 million in 2004. The company serves approximately 8,000 dealers through 28 multi-functional facilities that combine product showrooms, distribution centers, training locations, and will-call capabilities under one roof. Its product portfolio includes renowned vendors in the high-end consumer electronics market, such as Fujitsu, Bose, Sharp, Samsung, Niles, and Lutron.

"This acquisition is great news for our employees, affiliates, customers, and manufacturer partners," says Bob Gartland, president and principal founder of Avad. "We've been expanding our capabilities and extending our reach across the electronic systems contractor base for many years. We are building a dealer-to-builder program to help connect our customers to the growing new home construction market, and we have led the industry in dealer training and CEDIA certification. Now as a subsidiary of Ingram Micro, we'll have the resources and the capital to enhance our dealer services and accelerate our expansion plans."

According to Kevin Murai, president and chief operating officer of Ingram Micro, the company officially launched its consumer electronics initiatives early last year, after recognizing trends pointing to the convergence of consumer and business technologies.

"The lines between home and office are blurring," says Murai. "Many homes are being built or renovated with centralized electronic systems to combine data, entertainment, and everyday conveniences, such as lighting and appliances. Avad's customers are on the front lines of the convergence trend, selling and installing everything from home theater systems to lighting, security, and centralized controls. This custom installer market is one of the fastest-growing areas of the estimated $70 billion consumer electronics market in the United States."

Key Strategic Benefits

Ingram Micro becomes the leading distributor for solution providers and custom installers serving the fast-growing consumer electronics and home automation markets in the United States.

Ingram Micro adds a new business with average annual sales growth of approximately 35 percent since 2002, gross margins significantly higher than traditional IT distribution, and a highly competent management team averaging more than 25 years in the consumer electronics field.

Avad is better able to expand its product portfolio and reach through the support of a financially strong corporate parent. Avad will continue to provide limited access to prestigious and protected product lines for qualified dealers.

Ingram Micro adds Avad's customer base of 8,000 dealers and custom installers throughout the United States, with minimal overlap in its current customer base.

The acquisition consolidates Avad's 12 regional affiliates, offering vendors and multi-market customers a single point of contact.

Customers of both companies will benefit from a broader portfolio of products and services. Ingram Micro's current customers will have access to services that are not available through IT distributors, such as CEDIA certification and training. Avad's customers will gain a one-stop shopping experience for both information technology and consumer electronic opportunities, with access to Ingram Micro's marketing services, training and certification programs, technical support, and broad portfolio of products.

The transaction is expected to add approximately $0.02 to earnings per diluted share in fiscal 2005 and approximately $0.05 per diluted share in fiscal 2006. Earnings per share estimates reflect approximately $3 million in annual amortization of acquired intangibles, partially offset by cost and operational synergies, and exclude certain integration and acquisition costs, which the company cannot reasonably predict at this time.

"Our expansion into adjacent markets such as consumer electronics has always been a key element in our plan to meet the regional operating margin targets we communicated last year," says Keith Bradley, president, Ingram Micro North America. "We found Avad to be an ideal next step in our adjacent-growth initiative, complementing our acquisition of Nimax in the AIDC [automatic identification and data capture] space last year. We will operate Avad as a separate business unit, maintaining its current value proposition and brand, with minimal disruption to our existing business. Ingram Micro will provide enhancements in key support areas, such as finance, human resources, and information systems, but we will preserve Avad's customer-facing functions, such as sales, marketing, purchasing, technical support, and showroom facilities. I'm pleased that Bob Gartland will stay on board as president of our Avad business unit, along with other top members of Avad's management team."

Spierkel adds: "Avad gives us a strategic edge over our competitors, generating new avenues to growth in technologies and solutions that have been off-limits to IT distributors. This opens an exciting era in Ingram Micro history, setting us on a path to leadership in both IT and consumer electronics."

For more information on Ingram Micro’s acquisition of Avad, visit www.ingrammicro.com or www.avad.com.