AmeriQuest to Acquire Software Maker : Purchase: In taking over Kenfil, the Irvine-based hardware distributor--formerly CMS Enhancements--would nearly triple its revenue, boosting it into the $300-million-plus range.
Formation of a new major player in the personal-computer supplies industry was proposed Monday as hardware distributor AmeriQuest Technologies Inc. said it intends to acquire software distributor Kenfil Inc.
The all-stock deal would be worth $17.5 million at Tuesday’s market price for AmeriQuest shares--although the actual value depends on stock prices several months from now.
If the purchase is completed, Van Nuys-based Kenfil would become an AmeriQuest division. Its addition would nearly triple the revenue of Irvine-based AmeriQuest, boosting it into the $300-million-plus category that some analysts believe is the minimum size needed to survive and grow in an increasingly competitive market.
Although there are several huge distributors, like Santa Ana-based Ingram Micro Inc., with sales in the $1-billion to $3-billion range, there are fewer than a dozen in the $300-million-plus category, analysts said.
The acquisition would give AmeriQuest a big boost by providing it the software to sell to users of the computer equipment it markets, creating a unified company that eases retailers’ shopping chores.
“The deal makes sense because it is happening in an industry where you must grow to survive,” said Ian Gilson, analyst with L.H. Friend, Weinress & Frankso investment brokerage in Irvine.
But before AmeriQuest can expand through the Kenfil acquisition there is likely to be some shrinkage: Layoffs among the companies’ combined 300 employees are likely as the two consolidate warehousing and administrative positions. Company officials said they did not know how many jobs would be lost.
And while the combination is likely to benefit both companies by reducing overhead and broadening customer bases, it is unlikely to translate into price cuts that would be noticed by retail consumers of the goods AmeriQuest and Kenfil now distribute, officials of both companies said.
“We do expect substantial savings through economies of scale,” said Michael Rusert, AmeriQuest executive vice president and chief operating officer, “but it shouldn’t affect the street prices” of the company’s products.
The software sales and marketing operation would be run out of Van Nuys, but all other management and administrative functions will be consolidated in Irvine, company officials said.
And most shipping and warehousing would be consolidated at AmeriQuest’s central shipping and storage facility in Wilmington, Ohio.
Kenfil, with 150 employees and $191 million in sales last year, is one of the country’s largest software distributors. Its clients include corporate users, retailers such as Egghead Discount Software stores, and mass merchandisers, including the Office Depot chain.
The company distributes more than 3,500 titles from publishers, including WordPerfect Corp., Peachtree Software, Corel, Hewlett-Packard and IBM. But it lacks distribution agreements with industry giants Microsoft, Lotus and Ashton-Tate. Those companies won’t deal with Kenfil because it doesn’t have enough vendors, said Peter Grubstein, Kenfil’s chief operating officer.
But the combined vendor bases after the acquisition could prove attractive to the giant software companies, he said.
AmeriQuest, which until last week was called CMS Enhancements, begins its expansion campaign after shrinking from $200 million in sales in 1989 to $73 million last year.
The company raised almost $6 million in December with a private stock sale to investors led by the Wendover Financial Group in Los Angeles. Company officials said at the time they intended to use much of the capital to spur growth through acquisitions and by improving sales and service.
With an additional 3.9 million shares to be issued to Kenfil shareholders and lenders in the proposed acquisition, the Wendover and Kenfil groups each would own 33% of the company with 11.7 million shares outstanding.
Under the agreement, Kenfil stockholders would get one share of AmeriQuest common stock for every three shares of Kenfil common stock.
Simultaneously, holders of approximately $7.3 million of Kenfil notes would exchange their debt for additional shares of AmeriQuest common stock. Chrysler Capital Corp., the Detroit auto maker’s finance unit and Kenfil’s largest creditor with $5 million of that debt, would own nearly 10% of the company.
At Tuesday’s closing price of $4.75 a share for AmeriQuest stock, the deal values Kenfil shares at $1.58--to the surprise of investors who had been trading the Van Nuys company’s shares at about $2 each in anticipation of the agreement.
Speculative trading drove Kenfil shares to $2.50 when the market closed Monday, but the stock lost $1 a share to close at $1.50 Tuesday, based on the lower price in the AmeriQuest valuation. At the same time, AmeriQuest shares rose 63 cents for the day.
That kind of volatility is why the acquisition is based on an exchange of shares rather than flat price per share, said Grubstein. “We are both so thinly traded that it doesn’t take much to move our share prices, and neither of us wanted to be disadvantaged.”
Presuming that investors continue to see wisdom in the acquisition, AmeriQuest’s stock could climb in the weeks before the effective dates of the acquisition--which is to be completed in two stages ending in mid-July.
“That’s the chance people take in deals like this,” said Steven C. DeLucca, head analyst at Cruttenden & Co., an investment bank in Irvine. “If AmeriQuest goes up, Kenfil will go up in lock-step with it and everyone will profit. If AmeriQuest stock goes down, it could kill the deal.”
In a similar stock-based acquisition in Northern California last year, Intuit purchased Chipsoft Corp. in early December after announcing the deal in September. In the intervening two months, Intuit’s stock price rose by 35%--increasing the value of the shares it paid for Chipsoft by the same margin.
