After 128 years in business, Sager Electronics can still mark some “firsts” in its history. Sager Power Systems, a specialized group within Sager Electronics, is one of those.
For the first time, in 2014 and 2015, Sager acquired two companies in less than a year. The specialty distributor has, of course, acquired other companies: in 1999, California Switch & Signal helped Sager cement its position as a leading North American interconnect, passives and electromechanical (IP&E) distributor. But unlike its larger rivals, Sager’s acquisition pace has historically been slow and very deliberate. This time, Sager President Frank Flynn and Senior Vice President of Marketing Faris Aruri explained to Electronics Purchasing Strategies, changes both internal to Sager and external to the marketplace prompted the distributor to act quickly.
In 2012 Sager became part of the Berkshire Hathaway family of companies when it was acquired by IP&E specialist TTI Inc. Although TTI, Sager and Mouser—also owned by TTI—haven’t exactly gone on an acquisition binge, having a deep-pocketed parent has enabled Sager to quickly make back-to-back strategic acquisitions. Externally, the power market is undergoing a significant realignment. Vendors are moving from a largely captive to a merchant business model and making more standard power products available than ever before. “This dynamic aligns very well with the distribution business model,” Flynn explained.
While standard power products enable suppliers to reach an expanding base of customers, vendors also have less time to assist customers with power systems development and configuration. Sager has always played in the power market, but with customers requiring more technical assistance Sager opted in June 2014 to bolster its own expertise with the acquisition of Santa Clara, CA-based specialist PowerGate LLC. “This company was very good at sales and engineering and had an experienced marketing team,” said Flynn. PowerGate had been looking to expand its distribution and logistics capabilities beyond its stronghold in select North American markets. Combined, the companies are able to leverage Sager Electronics’ deep inventory, operational excellence and national reach to grow more quickly, said Aruri. “Both companies saw it as a win,” he added.
Sager’s second acquisition, Carrollton, TX-based Norvell Electronics Inc., brings value-added services to the equation. “Again, we had the option to buy or build a value-added capability for power products,” said Flynn. “Norvell has a robust power distribution business with the technical resources to customize solutions. They service customers that want to start [designs] with standard power building blocks but want to purchase customized solutions including cables and connectors. We wanted to offer those capabilities to our customers,” said Flynn.
Sager Power Systems will focus on securing design wins at OEM customers and then supporting those designs through manufacturing with products on the Sager Electronics line card. The North American distribution total available market (DTAM) for power products is estimated at $500 million, according to Sager, and is slated for modest growth. “To be successful designing in power systems you have to be technically proficient and closely engaged with the customer’s engineering team,” said Flynn. “[Within the power segment] we intend to stay focused on new products, industry trends and regulatory issues. But to be successful with designing in new products you have to understand your customers’ product life cycles, and have relationships in both purchasing and engineering to capture the production business. With [Sager Power Systems] as part of the larger Sager team we think that will work very well.”
One of the challenges facing all distributors is products that are designed in the Americas are being manufactured in the Far East. Sometimes component substitutions take place somewhere between design and final manufacturing. This represents lost business for both suppliers and distributors. Flynn and Aruri emphasize that while Sager Power Systems will spend a lot of time with engineering that won’t come at the expense of the purchasing department. “Purchasing requires a lot of support,” said Aruri, noting distributors have to follow through with customers and service their entire business. Aruri explains Sager Power customers will have a team working with them to ensure a seamless transition from design to manufacturing.
With its two acquisitions Sager now represents 11 of the top 15 power vendors by DTAM. Vendors are largely in favor of programs—called design registration or design wins— that get their components designed in to OEM products. “Suppliers see value in what Sager is doing in the power market,” said Flynn. “They recognize that it is a long-term, time-intensive commitment: power design cycles are 18 to 24 months. So we had to ask ourselves ‘are we doing something that customers truly value? Can we generate valuable wins for our customers and suppliers?’ We believe we will be successful at that.”
Suppliers seem to be receptive to Sager’s strategy. Among power component vendors, acquisitions and alliances have caused some upheaval in the market. Emerson Network Power has acquired Artesyn Technologies; SL Power acquired Condor, Ault and Power General. Bel acquired PowerOne, and Murata Power has acquired Datel, Newport and C&D Technologies over a period of years. Consolidation usually benefits customers who want to do business with fewer vendors. Vendors in turn often get a wider portfolio of products but less time to support all of those products. This is where distribution steps in to support both suppliers and customers.
“Customers require standard products but they also want custom configurable solutions without the associated long lead times,” Aruri explained.
“We are going out to the market with a strong value proposition that includes our technical team, comprehensive product offering, strong inventory and value added capability,” said Flynn. “We want to take the time to win the design and stay with the product through prototyping and release to market. Sager can develop a product pipeline for customers’ interconnect, power and electromechanical needs from the manufacturer to the customer.”
Sager’s recent acquisition strategy can be defined as finding the right partner; preserving that partner’s value; building on that value by adding people and resources; and leveraging the strength of Sager Electronics. “We integrate where it makes sense, but we are still in the ‘building mode’ [with Sager Powers Systems],” said Flynn. “We are offering a world-class set of suppliers that offer world-class solutions. We believe that both suppliers and customers will see that Sager is doing something different and we believe they will buy into it.”