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Focus will be key to Synnex/EMJ deal: analysts

Dan McLean, director of strategic partnering and alliances at IDC Canada, said EMJ has always been a selective, focused distributor, and keeping the focus as they become part of the Synnex Canada organization will be key.

“As a distributor, you can characterize them as high-touch, much more so than most other distributors, and that’s one thing that their vendors and reseller like about them — the personal interest that [EMJ takes] in them,” he said.

And when a smaller company is taken over by a bigger company, there are always changes made, and there’s no doubt EMJ will end up a different company than it currently is.

“You just hope they don’t lose the strengths they had as an organization,” McLean said. “Does Synnex look at EMJ as a focus on a specific market, or is it expanded into the larger Synnex community? There had better be very specific plans and ideas in place for where Synnex envisions EMJ playing.”

Michelle Warren, an analyst with Evans Research, said that while the two organizations both have “good, strong leaders with lots of experience in distribution,” this will not be an easy undertaking.

“That have to have the right structure for what they’re proposing, because both organizations right now have very distinct cultures and business practices, and both practices have strengths to them,” she said.

However, if done right, the deal could be a boon to both, as she notes there is a good opportunity to combine the customer base and to increase it, creating something of a “one-stop shopping” distribution experience for many product lines.

And while the jury remains out in terms of whether the merger will result in the second- or third-largest distributor in the country in terms of revenues, Warren said the new entity could challenge industry leader Ingram Micro Canada in terms of customer satisfaction. Evans recently completed research on reseller satisfaction ratings for distributors, and while Ingram holds the top spot with 23 per cent of resellers saying it’s their preferred distributor, combining the totals for Synnex and EMJ would put them in a dead heat for favorite distributor status. “The two of them could really give Ingram Micro a run for their money,” Warren said.

Both analysts agree that Synnex’s strategy is one of diversification — adding the specialty touch of EMJ to the broadline, low-cost model of Synnex.

“Nobody would think that Synnex is looking at EMJ to simply add more bodies and more resources, so they must have some specific ideas about how EMJ can expand Synnex’s presence in certain markets,” McLean said.

Tech Data Canada Rick Reid said that the diversification strategy is not any different from the one his own company has been using for the last several years, launching boutique businesses for software, consumables and supplies, system builders and other areas. The only difference is that Synnex chose to buy rather than build.

“You’ll see lots of deals like this down the road, with the niche distributor who has a high-margin product, looking for the advantages of a broadline distributor,” Reid predicted. “This is a good move for both EMJ and Synnex, and a clear indication that the industry is maturing and that the business we’ve all done for these past thirty years has diversified.”

Getting access to the lower-cost infrastructure of Synnex should help EMJ deal with pressures on its margins, he noted. But it’s not going to do anything about the number of distributors in the market. Reid has often stated that Canada is over-distributed, and said that a broadline distributor buying a specialty one does not change the fact that there are too many players in the broadline distribution game in this country.

“Nothing has really changed, there are no fewer of us doing it today than there were yesterday,” he said.

Neither does his view of the competitive landscape change much. Yes, he acknowledges Synnex will be looking to get EMJ’s resellers to buy their broadline products from Synnex, but at the same time, many resellers might find that their credit lines from the combined companies may not be a one plus one equals two situation, and may look to other distributors like Tech Data to help the credit situation.

Perhaps the biggest benefit for Synnex could be felt in the United States, where Estill will help Synnex launch EMJ’s barcode, autoID and point-of-sale business down there. “Synnex can take that phenomenal expertise that EMJ has, and leverage it into the real gold mine south of the border,” Reid said. “I consider Jim Estill a friend and an incredibly astute business person, and I couldn’t be happier for the man.”

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