Synnex Canada buys EMJ Data Systems for $56 million

Synnex will offer a more complementary blend of broad line and niche distribution businesses following its acquisition of EMJ Data Systems for $56 million, executives said

Thursday.

The agreement will see Jim Estill, president of Guelph, Ont.-based EMJ, take over as CEO of Synnex’s Canadian subsidiary in Etobicoke, Ont., while continuing to develop EMJ as a specialty distributor of Apple, bar coding, digital video, networking and other products. Mitchell Martin, who had led Synnex Canada following its takeover of Merisel Canada in 2001, will stay on as president of the broad line distribution unit.

Estill, who founded EMJ in 1979 while still a fourth-year student in systems design engineering at the University of Waterloo, has steadily grown the firm into a publicly-traded company on the Toronto Stock Exchange that has managed to survive the IT industry downturn. Last year, EMJ bought the Canadian operations of DaisyTek, essentially doubling the distributor’s size to more than $400 million in combined revenue and gaining entry to the supplies market.

While Synnex carries a much larger portfolio of some 60 product lines, Estill said he isn’t worried about how the two firms will fit together.

“”Anywhere where’s there’s not overlap is great — it’s room for growth,”” he said, since each firm can now provide their customers access to other product lines. “”The places where there’s overlap, then again there’s a synergy, because instead of selling a million dollars worth of Lexmark, then combined you’re selling 10 (million), or whatever the number is.””

The acquisition will allow EMJ, which had started to dabble in broad line products from companies like Microsoft, to focus on more profitable niches, while Synnex sticks with the commodities. Synnex Canada’s Martin agreed.

“”In the longer haul in distribution as a whole, the winning formula will be those distributors that have figured out how to be effective in both value and volume distribution,”” he said. “”Traditionally that hasn’t happened.””

News of the acquisition was welcomed by Ray Miller, country manager for Macromedia Canada, who said the merged companies will give Ingram Micro more competition in distributing its products here.

All three distributors carry the full line of Macromedia Web development tools. While sales through Ingram are often the largest of the three, Miller said, it shifts quarterly. In part that’s because EMJ and Synnex have very strong Macromedia managers, he said.

“”Synnex and EMJ were very careful with the products they brought on into their mix. That focus fueled their success. So you could look at this deal and say for smaller distributors this could give them the opportunity to become the next EMJ or Synnex, where they pick their products carefully and don’t put everything on their shopping list.””

EMJ recently migrated from a Zim system, running on a Unix platform, to SQL Server for its warehouse operations. The upgraded Microsoft-based system integrates with handheld scanners that warehouse staff use to accurately update inventory, shelve incoming products, and fill customer orders. Synnex meanwhile, converted Merisel Canada from an SAP ERP solution to its own proprietary system.

Eventually, Martin said, the two firms will want to be on one system, but because they are both operating profitably, there’s no urgency to realize back office savings. “”I think we have the luxury of time to do it in a manner in which we benefit from the cost savings but don’t disrupt the normal business flow,”” he said.

“”Synnex has awesome systems,”” Estill added. “”It’s very well run and has good, clean infrastructure and lower overhead. What we will do is a best practices review to see what did EMJ buy that Synnex buys.””

Estill said working for a global organization like Synnex would do little to change the entrepreneurial spirit on which EMJ has built is reputation.

“”You’re not going to be calling Synnex to speak to EMJ people,”” he said. “”I will be running the combined venture, and you’re not going to be able to take the entrepreneurial spirit out of my blood.””

Martin said the two firms share more of a cultural link than observers might realize.

“”Synnex’s history was the small distributor surviving opposite the big boys,”” he said. “”I think a lot of the entrepreneurial spirit that allowed Synnex to thrive on a North American scale is parallel to EMJ.””

Estill and Martin said the combined entity will place more pressure on larger rivals Tech Data and Ingram Micro, and Martin said Synnex would be looking at additional acquisition targets.

Macromedia’s Miller also said the deal could trigger consolidation talks among other small and mid-sized IT distributors. But, he added, “”it potentially opens up a niche for a specialty-type of distributor that has expertise in certain types of areas.””

That was one of the reasons Macromedia added EMJ as a distributor: It had strength in the Macintosh and education markets, he said.

No layoffs are expected as a result of the acquisition, in part because Estill intends to grow EMJ’s business in the United States.

–With files from Howard Solomon

Comment: info@itbusiness.ca

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