Unlike its bigger competitors TTI Inc. wasn’t initially a leading consolidator in the North American electronics components distribution market but the company has since been playing catch up with several strategic deals, including the purchase of Mouser in 2000 and more recently, Sager Electronics. More such deals may be on the way although these are likely to involve rivals in other areas of the globe where the company is expanding operations, according to Michael Knight, senior vice president, Americas, at TTI.
In a wide-ranging interview with Barbara Jorgensen, managing editor at Electronics Purchasing Strategies, Knight addressed TTI’s acquisition strategy and general trends in the electronics industry. EPS will be running a series of articles based on the interview and other reports. The first in the series is the following question and answer session on TTI’s assessment of the Mouser and Sager acquisitions and opportunities in Europe as well as in the fast-growing Asia-Pacific region.
EPS: TTI hasn’t historically been acquisitive, but that seems to be changing a bit. Can discuss recent acquisitions and TTI’s overall acquisition strategy?
Knight: It’s true, we have not historically been acquisitive. We have always been a conservative company and we remain pretty conservative; particularly in light of the turbulence some acquisitions have created in the marketplace. We elected to stay out of that.
I feel that was a wise decision on our part. We have done a couple of things over the years that have paid off – notably Mouser. At the time we acquired Mouser it was a small, $50 million family-run business and today it has revenue in excess of $600 million and is global. That was a real home run for us.
Our acquisition strategy, if you can all it that, is strategic. Sager was also strategic – it has expertise in the areas we are pretty new in – electromechanical and power. This very much complements our existing business and they have a different way of approaching the market. I think that will prove extremely complementary to what we do.
We do have a long term vision: if we see something complementary that would advance our cause then we would consider an acquisition. In Europe and Asia, as in any areas we’ve covered, we’d look for the same focus and style as TTI. We’ll expand our geographic footprint as we find those types of companies.
In North America we have a different view. We are looking at adjacent spaces where we can bring value. We have access to capital from our parent Berkshire-Hathaway, and we aren’t looking to consolidate the market but rather looking for ways to complement our business. We look for companies that have strong, experienced management that can stand alone. We connect [our organizations] where it makes sense and where it adds value. With Mouser, we have points of connection that help both companies but Mouser is an independent operating unit.
EPS: Aren’t there advantages to industry consolidation?
Knight: I think public companies have a level of pressure they are facing at a time that is very difficult for the industry. We are fortunate not to be saddled with [pressure to grow] and that’s a strategic advantage of not being publicly traded. We put our money back into inventory and that’s one of our differentiating factors. [Acquisition for economies of scale] is a very short-term view. If you want to acquire a company and a management team that will stay committed you can’t rip them off at the deal table. We take a long term view of things. We are not looking for businesses in trouble: it’s just the opposite. We want willing and active members of the family.
EPS: Can you talk a bit about what you see going on in foreign markets regarding acquisition?
Knight: We made a small acquisition of specialty distributor of automotive interconnect [in Asia-Pacific] and a power supply company in the UK, and both brought us a good group of people that know their products pretty well. Europe has been adopting the North American [consolidation] distribution model for some time. But the [distribution] fundamentals are the same. There are complexities in Europe that you don’t see in North America — you are buying companies in different countries rather than in different states — and there are cultural differences. Size-wise, the EU market for component looks a lot like North America’s, but European companies don’t sell through manufacturer’s reps; They either buy supplier-direct or through distribution.
Asia is quite a bit behind in that evolution but as with everything, Asia is catching up. In respect to distribution, it makes sense to [consolidate] as we do in North America. In Asia, most suppliers sell through small, local family businesses: they have one distributor for one or two customers. If you want to compete in a global market you have to provide the ability to act global. There is growing appreciation for the [consolidated] distribution model but at the same time we need to be sensitive to the unique needs of the Asian customer base.