Electronics Production | September 27, 2007

Avnet buys Acal IT Solutions

Avnet, Inc. announced that it has reached a definitive agreement with Acal plc for Avnet to acquire the IT Solutions division of Acal plc for a cash consideration of £41 million.
Acal IT Solutions is a distributor for Storage Area Networking (SAN), Secure Networking and Electronic Document Management products and services, with operations in the UK, the Netherlands, Belgium, Germany, France and Sweden. The closing of the transaction is subject to approval by Acal shareholders and EU merger control clearance.

With the acquisition, Avnet gains an additional 2000 Acal resellers and system integrators as well as 180 employees experienced in the design and installation of complex solutions addressing storage networking and document management requirements. Acal IT Solutions markets a portfolio of storage networking, networking and fibre channel products from suppliers including Brocade, Cisco, Emulex, Juniper and Qlogic and document management solutions from Canon, Fujitsu and Kodak, among others. Its Headway Technology Group is positioned to meet the increasing requirements of document management and storage with a portfolio of products including document capture software, scanners, optical, CD and DVD storage hardware and software and tape backup solutions. In addition, the acquisition of Acal will bring to Avnet a value-added services unit providing network infrastructure planning and implementation and training as well as technical support. In the fiscal year ended March 31, 2007, ACAL IT Solutions revenue was approximately $200 million. Acal IT Solutions will be integrated into Avnet Technology Solutions´ EMEA business.

Dick Borsboom, president of Avnet Technology Solutions EMEA, commented, "The acquisition of Acal´s IT Solutions business will significantly expand our product line by adding complementary products in high growth segments including Storage Area Networking (SAN), wired and wireless networking and security, and document management. In addition, Acal IT Solutions brings a suite of professional services that will enhance our ability to deliver solutions and services that meet the increasingly complex requirements of the combined customer base. We are excited about the opportunities this transaction will provide to deepen our engagement with our reseller partners and accelerate the growth of Technology Solutions in Europe."

The transaction will also provide Avnet Technology Solutions EMEA with access to a new market segment through the Headway Technology Group. The group specializes in the design and installation of document imaging solutions that include high-quality document scanners, optical character recognition tools and highly sophisticated hardware and software to manage the data easily.

Mr. Borsboom added, "While document management and imaging started out as separate markets, they are now migrating to enterprise content management solutions as enterprises seek to automate, or virtualize, their business processes. This suite of products and services offers significant opportunities for cross selling because we can expand the range of opportunities we can address with a complete solution."

Acal currently comprises three divisions: Electronics, Parts Services and IT Solutions.

The strategy of the Acal Group is to concentrate on products and services which can generate superior margins when compared to "broadline" distributors. This is largely achieved by selecting products that require significant support and/or added value. On a regular basis the Board reviews all businesses within the Acal Group in order to ensure that this strategy is being delivered and to examine other opportunities to enhance shareholder value.

The Board believes that, in future, the interests of Shareholders will be better served by Acal concentrating its management and other resources on the development and growth of its Electronics and Parts Services divisions. Both have opportunities for growth in areas in which they are strong.

The Electronics business has at its core a strategy of "demand creation" distribution, or "design-in", rather than demand fulfilment, and this is the key differentiator between Acal and most other distributors in the industry. This has been considerably enhanced in the past two years by a greater emphasis on higher technology products, and in particular, the introduction of a number of new specialised semiconductor suppliers, which the Board believes not only provide access to a far greater market potential than the Company´s more traditional passive and electromechanical portfolio but also a higher potential for growth over the longer term. It has involved considerable investment in people and skills which will continue as further complementary suppliers are added. Acal´s "design-in" approach to distribution means that there is inevitably a time lag, which can vary from 9 to 24 months, between introduction of a new product line and generation of revenue from that line. In the last year or so we have started to see the benefits of an enhanced product portfolio. As new product lines have been introduced at different times in different territories, these benefits have arisen, and will correspondingly arise, over different periods in different territories.

The Parts Services business concentrates on the supply and management of parts for IT infrastructure maintenance and service companies. It offers a distinctive model which combines our knowledge of failure rates in IT equipment and technical expertise to provide reduced inventory expenditure for customers without affecting service levels. Acal Parts Services takes control of all aspects of the supply chain and converts the unpredictability of inventory cost for customers into accurate pricing for all aspects of supply and life cycle management 24 hours a day, 7 days a week, whilst at the same time removing from these customers uncertainties relating to inventory obsolescence and the need for stock write downs - these are increasingly attractive services required by maintenance and service organisations which operate in an industry with constantly reducing unit prices and margin pressure. There is a high level of interest among customers and potential customers in the Acal Parts Services offering. However, the change to what is essentially an outsourced model for procurement and management of spare parts involves fundamental changes in customer organisations and therefore takes considerable time to "sell" and implement.

Whilst Acal´s strategy is primarily based on organic growth, the Board will consider selective acquisitions where they accelerate the delivery of this strategy.

Given the decision to concentrate on the Electronics and Parts Services divisions, the Board has decided to dispose of the Acal IT Solutions Business.
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