The new year is only a few days old and already the IT distribution industry has seen its first consolidation deal with the decision by Agilysys Inc. to get out of the market.

Boca Raton, Fla.-based Agilysys, which has four Canadian offices, is selling its KeyLink Systems distribution division to Arrow Electronics for US$485 million so it can concentrate on its solution provider business, the companies announced Wednesday.

Arrow has two divisions, one that sells electronic components and a North American enterprise computing systems (ECS) business that sells to resellers. According to Jacqueline Strayer, Arrow’s vice-president of corporate communications, this deal plus acquisitions Arrow made in 2006 will bring ECS division revenues to about US$5 billion.

That would put it close in size to Synnex Corp. of Freemont, Calif., which reported annual revenues for 2005 of US$5.6 billion. Synnex will report its 2006 figures next week.

However, Arrow’s electronic components business makes the company’s total revenues come to US$16 billion.

Among the major products KeyLink carries are enterprise products from IBM, Hewlett-Packard and EMC, which Arrow already distributes. But Strayer said a big gain is the ability to sell products from Oracle Corp.

“That’s the main new piece for us,” she said.

For the time being until the deal is sealed it’s business as usual for KeyLink employees, said Strayer. She also said she doesn’t anticipate that any staffers who deal with customers will be affected.

“We’re developing integration teams with KeyLink and Arrow ECS employees, who are going to figure out best how to put these two organizations together. We don’t anticipate any major closings of any facilities.”

But Agilysys isn’t getting out of Canada altogether. Through its solution provider division, called Agilysys Canada, it will continue to sell systems direct to corporate and government accounts. The deal includes a five-year promise to for Agilysys to buy enterprise products from Arrow.

Neither Arrow nor Agilysys spokespersons could estimate the number of resellers KeyLink deals with in this country. Across North America KeyLink sells to some 800 partners. Agilysys Canada alone does close to $50 million in sales here, said a company executive.

Agilysys simply couldn’t afford to stay in distribution any more, said Martin Ellis, Agilysys’s executive vice-president and chief financial officer. “Long term to be able to compete in distribution one needs to be in a business of scale, and while our distribution business is fairly sizeable we’re nowhere close to the size of some of the other competitors in our industry.

Arrow has total revenues of US$16 billion, he noted, while Avent Inc., which completed its acquisition of Access Distribution yesterday will have around US$17 billion in annual revenue, he said. Ingram and Tech Data are bigger.

It would have been difficult to grow both Agilysys’s distribution and solution provider divisions, he said, so the decision was made to get out of distribution.

The sale of the distribution unit completes a shift in strategy of Agilysis started in 2003 when it got out of the electronic component distribution business. Since then it has grown its solutions business from US$276 million to US$69 million, in part through a number of acquisitions. The lastest was the purchase in December of Visual One Systems, a software developer and services provider to the hospitality industry.

Its distribution business began in the late 1980s, and expanded with the purchase of Dickens Data Systems in the mid-1990s, which had Canadian VARs.

In addition to corporate and government sales, Agilysys Canada also markets proprietary software to casino and resort hotels in Canada.

Comment: info@itbusiness.ca

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