Acquisition of Van Nuys Software Firm Proposed

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 go.

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 AmeriQuest software division, to be called AmeriQuest/Kenfil, would be led by Kenfil president and chief executive Irwin A. Bransky, who started the company in his Van Nuys garage in 1983. He would report to Carol Miltner, AmeriQuest’s executive vice president for sales and marketing.

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.

That marks Kenfil’s California warehousing operations in Van Nuys and Valencia as well as its warehouse in Salt Lake City and AmeriQuest’s warehouse in Irvine as targets for elimination.

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.

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. At Tuesday’s closing price of $4.75 a share for AmeriQuest stock, the deal values Kenfil shares at $1.58.