Consolidation in the distribution industry is moving slower than it needs to, says Bluechip Infotech managing director Johnson Hsiung, because too many distributors fail to keep their accounting in line with international standards.
Hsiung is in the midst of one of the most turbulent periods in his professional life – the merger of BlueChip with fellow distributor, BBF. The merger has not been without its dramas, but Hsiung is confident it will pay dividends in the long run.
There are lessons in his story for many distributors considering merger and acquisition activity.
“There is a lot of talking about mergers and acquisitions, but not much happening,” he said.
Like most industry professionals, Hsiung sees distributor consolidation as both necessary and inevitable. The industry is so competitive and so tough, he said, that even the local operations of Australia’s largest distributors are still making a loss. “Size does not guarantee profitability,” he said. “There are too many distributors in the market. There will have to be more consolidation.”
But Hsiung sees several factors standing in the way of his peers taking a similar leap of faith.
The first of these factors is a lack of accountability among distributors, especially smaller and medium-sized companies.
“One of the hardest things that you have to do is open up your finance figures,” he said. “Your books need to be organised according to international standards; they need to be audited.”
Many distributors still operated in the same way as a family business, Hsiung said. They either kept their own books or had their accounting done by close business associates and friends.
When an interested party considered acquiring the business, he said, the state of the distributors’ financial reporting was often a deterrent to mergers.
The second major barrier Hsiung saw was that many in the distribution channel viewed merger and acquisition activity as a means of “cashing out of the game”, not as a means of growing the business.
“It is very important to make sure both parties are heading in the right direction,” he said. "It is important that everybody has the same view of the channel. No merger will work if one of the parties just wants to cash out.”
Hsiung insists that despite the resignation of some unsatisfied BBF staff since the merger announcement, all aboard are keen for a long ride ahead.
“We all have the same view,” he said. “We all see this as a chance to grow to the next stage, not as a chance to cash out.”
The third barrier to more successful mergers is the lack of profitability in the distribution channel at present.
Hsiung said that for a merger to prove successful, both parties need to be profitable.
For more on this story, see this week's issue of ARN.