Kismet: that's how Kathleen Ellison, president and CEO of B&K Electric Wholesale, City of Industry, Calif., describes B&K's acquisition of Sanger Communications, a voice/data specialist.
“Rick Sanger just walked in the door at the right time and place,” said Ellison. “It was really strange because we weren't looking to buy a company. We were just looking to get into that field.”
A headhunter sent Sanger Ellison's way more than a year ago when B&K was in the beginning stages of starting a datacom division. Sanger was interviewing for an RCDD (registered communications distribution designer) position because his small family business had been struggling with some of the larger area competitors. “I had a very competent staff, and I had decided that I would try to remove my salary from the equation and let them run the business,” said Sanger.
In the course of the interview, Sanger mentioned he owned a small communications distributorship. Ellison's ears perked up.
“I didn't think anything would come of it because my financial statements were not looking very positive,” said Sanger. But Ellison saw the potential.
The advantages to B&K acquiring Sanger Communications far outweighed the disadvantages. Breaking into the voice/data arena can be difficult for electrical distributors. According to Sanger, it takes a long time for customers to realize that distributors are into voice/data. “There is a lot of inertia,” said Sanger. “It may take dozens of exposures to the message that you are into datacom.”
Ellison recognized that Sanger and his team of five knowledgeable communications people could help B&K bring datacom up throughout the company. So, a little more than a year ago, family-owned B&K Electric Wholesale entered the datacom market by acquiring Sanger Communications, Van Nuys, Calif., adding it to five other Los-Angeles-area branches.
“Schools are very active right now in the datacom market.”
— Rick Sanger
Since last August, the two entities have worked hard to integrate Sanger Communications into B&K. Mostly it's been a smooth ride — but it's also sometimes been a long ride. Literally. Although it's only 40 miles from the acquired branch in Van Nuys to B&K headquarters in City of Industry, it takes at least an hour and sometimes as long as three hours in travel time.
Over the years, B&K had strategically managed its geographic growth to the east of Los Angeles. With Sanger Communications located in Van Nuys, well to the northwest of Los Angeles, geography has proved a challenge.
“We're on the opposite side of L.A.,” said Sanger. “So you have to go toward the big city and around it to get to us. That was one of the real concerns initially — the geographic locations.”
B&K quickly learned that inter-store product transfers were not a viable option when it came to the new Van Nuys branch. To send a truck and driver to Van Nuys didn't make economic sense. Instead the company uses couriers, UPS or a truck service to move products in and out of Van Nuys. When employees need to make the trip to or from Van Nuys, they usually go in pairs so they can take advantage of the car-pool lane.
The acquisition created other challenges as well. “Anytime you integrate two businesses together there are personnel and process challenges,” said Ellison. “I think the biggest was integrating the computer systems.”
Because the two companies used different computer systems and because Sanger Communications didn't use UPC codes, its entire inventory and customer database had to be manually entered into B&K's system.
“I don't think the data-processing and accounting people were very fond of us the first couple of months that we were here,” said Sanger.
The UPC codes were particularly taxing. “It was quite challenging for purchasing,” said Sanger. “David (Schwartz, director of purchasing) spent two or three weeks with us going through boxes and saying, ‘What's this? Now what's the difference between this and this?’”
In many instances, there really wasn't much difference. “The way that datacom is marketed, we have to have three or four lines of connectivity in order to service our full range of customers because some of them are certified on one brand of connectivity over another,” said Sanger.
Voice/data manufacturers' certification programs train contractors on the installation of their voice/data products. By being certified on a particular brand of voice/data products, it allows contractors to “partner” with a manufacturer and offer extended warranties. With contractors allying themselves with a particular brand of products, it can leave a voice/data distributor salesperson dead in the water if the distributor doesn't carry that particular manufacturer's products. “You have to be able to offer a variety of different brands,” said Sanger.
“That was one of the things I got really confused about because as an electrical distributor we don't carry four lines of fuses,” said Ellison. “But there are different levels (of voice/data): low level, medium level and high level. It would be like buying a Kia, a Honda and a Lexus. They're all cars, but they all have something that's a little bit better than the others. And certain entities will only take the higher priced products.”
“That is very confusing to an electrical distributor,” said Ellison. “Why would we want to carry four lines of the same thing? So that was something we had to learn and educate ourselves on — especially the purchasing department.”
The folks in the purchasing department weren't the only B&K veterans that needed education when it came to voice/data products. Sanger and his datacom team have been training throughout the B&K organization over the past year. As a result, the counterpeople at each of the branch's general counter areas are able to talk about datacom to customers that ask about it, and the outside salespeople on the electrical side of the business have been trained on terminology and the basics as well.
“They have enough of a grounding to say, ‘Yeah, we can do that,’” said Sanger. If the questions get more technical, the electrical outside salesperson brings along one of the datacom specialists.
When asked how compensation works when two salespeople call on a customer, Sanger and Ellison said that there haven't been problems. As a longtime Allen-Bradley distributor, B&K's outside salespeople are used to bringing along product specialists on sales calls to their accounts. “The specialist gets a commission on that product and so does the outside salesperson, so it works,” said Ellison. “They'd be reluctant to bring a specialist if the compensation didn't work this way.”
Another reason there haven't been conflicts between the outside datacom salespeople and the outside electrical salespeople is because very few instances exist where the customer is the same. “The datacom salespeople are out developing new accounts where there is a distinct need for datacom,” said Sanger. “They're calling on different accounts than the electrical salespeople.”
Even in instances where the customer is the same, B&K's electrical and datacom salespeople work with different people and departments within the customer company. Electrical deals with maintenance/electrical and facilities people. Datacom deals with a company's MIS department.
“There is a situation right now where we have one customer,” said Genie Miranda, a datacom outside salesperson, “but we split the account.” The electrical salesperson handles the electrical portion, and Miranda handles the datacom side for that company. “It works very well for us,” said Miranda.
Ellison pointed out that a lot of electrical distributors choose to make datacom a very separate division within their companies. “Because of the size of our company, we chose not to do it that way,” said Ellison. “(That's because) we have such numerous customers. We couldn't send them all to Van Nuys to do datacom, so that's why we integrated it the way we did. If we had bought a company that was 300 people, we couldn't have integrated as well.”
In fact, the acquisition went so smoothly, Ellison is contemplating the possibility of making other acquisitions down the road. She and Sanger credit the similarities in the two company's cultures with the successful integration. Both companies had strong family ties; Sanger Communications was started by Sanger's father, and Ellison's father started B&K. Additionally, both entities placed high value on people, recognizing the most important asset of a company is its employees. Customer service had also always been a high priority for both companies before the acquisition.
“If you're going to make an acquisition, find a company with a similar value set,” said Sanger.
Ellison concurred: “I think if you can find a company with the same values, same core beliefs, it will work.”
In the meantime, B&K will continue to cultivate voice/data and electrical customers. Part of that cultivation comes in the form of a move from its current headquarters to a larger location later this year. Another move is on the horizon as well. Next year B&K plans to move the Van Nuys branch into a bigger facility. The present Van Nuys branch is dedicated solely to datacom. “Currently, we don't have any electrical products out there,” said Ellison. “We have a very small location and we need to move to a larger location before we can start stocking conduit and some of the electrical products. It gives us a toehold — not a whole foothold yet — in a new market area.”
In the present, B&K's voice/data sales are on the rise. “Voice/data business is increasing in the branches as the customers get used to the fact that we have datacom products,” said Sanger. “I see a steady increase from month to month in the sales at the branches.”
The numbers probably aren't nearly as big as they might have been without the nation's economic uncertainty, California's energy crunch and the demise of many dot-coms.
“A lot of the big projects that we did last year were Internet companies,” said Sanger. “They were putting 400 people in a building that needed all this cable.” Since then, many of those large companies have just disappeared.
Kathy Ellison on acquisitions:
“I think if you can find a company with the same values, same core beliefs, it will work.”
Other potential jobs have been put on hold. “We bid a lot of upgrades and projects and then they decide they're not going to do that right now,” said Sanger. He often hears, “We're just going to wait and see what happens.”
Business supplying schools and cities for retrofitting existing structures and for new construction has been robust, though. “We have a lot of schools, cities,” said Sanger. “Schools are very active right now in the datacom market. They've gotten a lot of funding for technology from the state and from the federal government. So, it's pretty busy in the schools right now.
“It's a lot of maintenance in the cities. They have old Category 3 or token-ring cable, and they're merging into Ethernet.”
B&K is also looking to expand into datamation — the cabling of the factory floor with high-speed fiber-optic Ethernet backbones to link production information from the factory to the front office. One of the reasons the B&K/Sanger “marriage” made sense is that B&K is an industrially-oriented distributor with the Allen-Bradley product line.
“We're touching on datamation a little,” said Sanger. “We're still very much on the leading edge.”
Sanger said that fiber-optic cable is still an unknown for many electricians. “It's not electrical, it's light. It's like some kind of mystical thing that nobody can manage, but that perception is changing.
“One of the things that we've done very effectively over the last couple of years is train people in fiber optics,” said Sanger. We sit them down and we show them how to put on fiber-optic connector, and they're doing it in an hour successfully. They say, ‘Oh my gosh, I've been paying people $100 to put a connector on a cable and now you've just shown me in an hour how I can do it myself for a fraction of the cost.’ ”
Although the economic slowdown and California's energy woes have put the breaks on some big projects that B&K might have supplied, Ellison said the acquisition has helped the company weather this little storm.
“I'm very pleased that we were able to do this purchase last year because we are now able to sell different kinds of material to our same customers,” said Ellison. “So, everyone's sales are down in that respect, but we're even because of the additional products. What luck and perfect timing.”
TIPS FOR BREAKING INTO DATACOM
Breaking into the voice/data arena can be difficult for electrical distributors. Starting from scratch with existing people and resources makes a distributorship's learning curve pretty steep. You can bet there will be plenty of false starts and stops as a company feels its way through what works and what doesn't.
Another option for a company wanting to claim its share of the voice/data market is to hire a pro. Bringing in a registered communications distribution designer (RCDD) will certainly help a distributor set up a voice/data shop. Having specialists available is always of value to customers.
B&K Electric Wholesale, City of Industry, Calif., broke into the voice/data field by acquiring a small datacom distributorship. While this may not be an option for everyone, B&K's experiences offer other tips:
Be prepared to offer datacom products from many manufacturers. Because datacom is a much newer market than electrical, voice/data manufacturers do a lot of marketing and positioning. “We have to have four or five different kinds of Category 5 jacks and patch panels on the shelf,” said Rick Sanger, communications specialist with B&K. “Essentially, it's the same product, but because of the branding and marketing, we have to have several lines.”
Designate an individual in each branch as a datacom champion. They don't have to know it all, but they should be able to answer basic questions. Customers can be referred to your RCDD(s) when needed.
Offer training. Work with your vendors to schedule certification training for customers. By being certified on a particular brand of voice/data products, it allows contractors to “partner” with a manufacturer and offer extended warranties. It also assures that your customers will be certified on brands that you carry.
Set up compensation packages so salespeople are rewarded, not penalized. Outside electrical salespeople will be reluctant to bring specialists along on sales calls unless you make it worth something. At B&K, the specialist gets a commission on the product and so does the outside salesperson.
Be patient. It takes a while for potential customers to realize that you're into datacom. “It may take dozens of exposures to the message that you are into datacom,” said Sanger.
B&K BY THE NUMBERS
HEADQUARTERS: City of Industry, Calif.
COMPANY SALES: $33 million
SIX LOCATIONS: City of Industry, Calif.; Corona, Calif.; Rancho Cucamonga, Calif.; Santa Fe Springs, Calif.; Van Nuys, Calif.; Irwindale, Calif.
INVENTORY: $4 million
($300,000 in communication products)