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Picking His Targets
Claudio Osorio is the man to watch in computer wholesaling--in
good part because he deliberately stays out of the world's richest
market.
By
Shailaja Neelakantan/NEW YORK
Issue cover-dated August 11, 1997
CLAUDIO OSORIO, 38,
entered computer wholesaling only in 1985 and has already expanded
his revenues 33 times, all while avoiding the fattest market
of all, the U.S. This country has 41% of the PCs on the planet.
Osorio's Miami-based company, CHS Electronics, wants no part
of it. He peddles PCs, software, networking equipment and peripherals
like printers and modems to resellers in Europe and Latin America.
In the U.S., computer retailing is shifting to direct sellers
like Dell and to large national chains like CompUSA, neither
of which have a need for a wholesaler to stand between them
and a manufacturer. But smaller markets still have fractured
distribution systems that offer opportunities to smart wholesalers
who understand the quite different local markets. Osorio has
the cosmopolitan flair to stitch all these pieces together.
He was born in Venezuela, studied law and business and speaks
five languages. He learned the wholesale business young. At
the age of 16 he was wholesaling sporting goods for a firm he
cofounded. In 1985 he got out of sporting goods and switched
to a product with a little more action: computers. He started
by assembling PCs for Venezuelan and then German markets.
Merisel, the publicly held, number two computer equipment distributor,
never got the knack of running a multinational wholesale operation.
It could not make its European outfits profitable. So in September
1996 Osorio bought Merisel's European and Latin American operations
for a song, 0.8 times revenue. That one acquisition kicked his
revenues from $937 million in 1995 to $1.9 billion last year.
Merisel's European unit was so mired in losses that no one would
touch it. Osorio took it on the condition that he would also
get Merisel's profitable Latin American unit. Merisel would
probably have made more money selling the pieces separately,
but it accepted Osorio's deal, glad to be finally rid of Europe.
In January 1993 Osorio acquired a German distributor of Hewlett-Packard
products. It proved a prize catch: HP now makes up 34% of all
CHS' sales. CHS paved the way for HP's entry into untapped markets
like the Czech Republic and other Eastern European countries.
All told, Osorio has since acquired some 20 companies throughout
Europe and Latin America, the latest (announced on June 23)
a Swiss firm that should add $1 billion in annual revenue.
Osorio characterizes the buyouts as "earnouts" because
in most cases he keeps the original owners on as salaried employees,
also compensating them on the basis of future earnings. "My
army of entrepreneurs," he calls them.
In another business Osorio's pace of acquisitions would border
on reckless. In the fast-moving computer industry it is a defensive
strategy. Even though it operates in relatively small markets,
CHS' combined heft gives it clout with suppliers and economies
of scale. Talk about slim margins. CHS will probably net a mere
$28 million, or $1.70 a share, this year on revenues of $4 billion.
But this isn't bad for a distributor that can turn over its
inventory nine times a year. Though its return on sales may
look skinny, its return on capital is most impressive.
How does this young company finance its acquisition binge?
Osorio used to get capital from venture capitalists in Switzerland
and Germany. A year ago he raised $56 million in a secondary
stock offering, selling 40% of the company. The stock has climbed
from its offering price of 12 to 31--much to the credit of its
underwriter, Raymond James & Associates. With its stock
at a healthy 20 times trailing earnings, CHS now has the wherewithal
to expand. Most of its deals these days are paid for with a
mix of cash and stock.
CHS is now the fourth-largest in the business, after Ingram
Micro, Tech Data and Germany's Computer 2000. Don't be surprised,
however, if it continues to move up the list. The recent Swiss
acquisition includes an Asian subsidiary; Osorio says he will
further expand into Asia this year. Now there's a market he
can really sink his teeth into.
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