Avnet Tries Buying Its Way to the Top

Avnet wrote the book on corporate acquisitions. But it’s still working on the happy ending. The “Cookbook,” as the in-house reference guide is known at Avnet, an $11 billion electronic-components distributor, is actually a set of documents stored on a file server.

At more than 1,000 pages, it represents Avnet’s accumulated wisdom on integrating newly acquired companies; the firm has purchased 33 of them in the last 10 years alone.

The Cookbook deals in detail, including timelines, risk-mitigation strategies, prioritized activities, employee-welfare concerns and even some paragraphs on state laws.

Started in the late 1980s, it’s been updated continually, and includes chapters on IT, finance, human resources, logistics, materials, sales and more. Each functional area of the company assigns a knowledge worker to keep that part of the book up to date.

“Acquisitions have become a best practice for us, and we learn from every one we do. So we created a book that has the rules of the road—the methods and procedures for doing an acquisition,” said Ed Kamins, chief operational excellence officer and former CIO at the Phoenix-based company. “I would stack up our process for acquisitions against anybody’s. A lot of people make the same mistakes over and over again. We make them once.”

Now Avnet needs to apply its knowledge-management prowess to new markets as it battles its longtime rival, Arrow Electronics, for global supremacy in a fast-changing business. For years, Avnet and Arrow have vied for the top spot in the electronics distribution industry as they consolidated the North American and European component markets, in which the two companies control about 60 percent of the market between them.

The next big prize: Asia, where the distribution business remains highly fragmented, and an increasing concentration of electronics manufacturing is located. “Asia is a key focus area, specifically China,” said Avnet CIO Steve Phillips. If Avnet is to become the largest player in a consolidated global industry, it needs to keep adding chapters to the Cookbook. “Each acquisition we make in the region brings additional scale, experience and knowledge of the Asia market,” Phillips said.

Having a guidebook is a big help in a business where IT is critical to day-to-day performance: You need the systems to do the job. “It’s just so important, because there are so many customers, and hundreds of suppliers, and millions of parts numbers,” said Matthew Sheerin, an analyst with Thomas Weisel Partners, in San Francisco. “Things like supply chain management are core to what these companies do.”

Avnet divides the world into three distinct regions, each with its own management and ERP (enterprise resource planning) system, but the Cookbook guides practice everywhere. The goal: to integrate new acquisitions tightly and smoothly within each region, while allowing regional managers a certain degree of freedom.

Avnet’s recent foray into Asia began with the 2001 purchase of China’s Sunrise Technology; its second big deal there—and its first purchase of a competitor with truly global operations—was the July 2005 acquisition of a $2 billion company called Memec Group Holdings. “We could not have done the Memec deal if we had not gone through many others before,” Kamins said. “It was important to have well-established management teams and IT infrastructure in all three regions where Memec does business—that let us orchestrate it almost as three different acquisitions.”

The deal for Memec gives Avnet an early lead over both Arrow and another large competitor, Taiwan’s World Peace Industrial Co., in the Asia phase of the game (although Arrow and World Peace have already responded with acquisitions of their own). But simply adding volume won’t be enough to make the growth strategy succeed.

The focus now is on growth that flows to the bottom line, and on managing acquisitions for long-term performance. “Today our expectation for return on capital is simply higher” than it was when acquisition-fueled expansion was the company’s primary strategy, Avnet Chief Executive Roy Vallee said in a speech late last year.

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Avnet Tries Buying Its Way to the Top

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