CICERO —– On July 9, WYNIT Distribution, LLC, headquartered at 5801 E. Taft Road in the town of Cicero, inked a deal to buy “substantially all of the assets” of the Navarre division of Speed Commerce, Inc. (NASDAQ: SPDC), a publicly held company headquartered in Minnesota. Craig–Hallum Capital Group acted as the investment banker for […]
CICERO —– On July 9, WYNIT Distribution, LLC, headquartered at 5801 E. Taft Road in the town of Cicero, inked a deal to buy “substantially all of the assets” of the Navarre division of Speed Commerce, Inc. (NASDAQ: SPDC), a publicly held company headquartered in Minnesota.
Craig–Hallum Capital Group acted as the investment banker for the seller in the transaction.
WYNIT, founded in 1987, is a national distributor of products in the consumer electronics, photo, wide-format printing, security, and outdoor industries. The company serves a wide range of customers from large retailers and independent resellers to dedicated business units. In addition to its Syracuse–area location, WYNIT has distribution centers in Memphis, Tenn. and Reno, Nev. Navarre, founded in 1983, is a national distributor of consumer electronics and accessories, video games, and proprietary software products for PC and Mac platforms. The company has facilities in Minneapolis; Richardson, Texas (Dallas); Cedar Rapids, Iowa; Bentonville, Ark.; and Mississauga, Ontario, Canada.
According to the Form 8-K filed with the U.S. Security & Exchange Commission (SEC) on July 9, the purchase price for Navarre was $15 million. Speed Commerce received $5 million of the all-cash deal at the closing. The additional $10 million is secured by a promissory note, which in turn, is secured by the buyer’s assets.
The seller subordinated its security interest to the buyer’s secured lenders. No principal payments are due in year one with the principal balance amortized over three years. Post-closing modifications are included in the agreement for working-capital adjustments and for the repurchase of uncollectible receivables. The sale did not include the assets of Speed Commerce’s e-commerce division.
“This was a dream acquisition,” asserts Peter Richichi, WYNIT’s COO and a 50 percent member of the LLC. “It was a once-in-a-lifetime opportunity. Navarre is in the same business: buy, hold, sell. They have 350 suppliers, and only one overlaps with us. By putting the two companies together, we now have relevant and meaningful relationships with the largest retailers in the United States and Canada, including Best Buy, Target, Walmart, Costco, Staples, Office Depot, Office Max, and Apple Stores. That makes us a leading distributor [of these products] to retail in the U.S.
“WYNIT can plug Navarre into its business model and share product lines and customers. It’s not that hard to cross-train our sales reps on the new software products, when you are selling industry leaders like Norton Anti-virus (Symantec), McAfee, and Rosetta Stone … WYNIT is really good at running a low-margin, transitional business. We know how to pick, pack, and ship. To us, the key factor for making the acquisition was adding another $400 million in revenue with $35 million to $40 million of gross profit. Consider too that the acquisition came at a perfect time. There is momentum in the economy, and the current retail war is finally shaking out … [the strongest players.]”
According to Richichi and Geoffrey Lewis, WYNIT’s president and co-owner, the post-deal WYNIT employs 425 people, swelling seasonally to nearly 500. Of the total, 125 work in Cicero; 75 in Minneapolis; 40 in Mississauga; 40 in Greenville, S.C., and three in Bentonville, Ark. (at a sales office for Walmart). The remaining employees are sited at the distribution centers in Dallas, Reno, and Memphis. The Business Journal estimates WYNIT’s revenue at $450 million, and Navarre posted net sales of $430.6 million in fiscal 2013. The company currently leases about 635,000 square feet of space.
“Both sides got what they wanted,” avers WYNIT’s COO. “We nearly doubled the size of the company [in a stroke] and positioned ourselves as the leading, national distributor. The fit with Navarre was 100 percent accretive to our business. Now we need to migrate the Navarre data systems to be compatible with ours, and we need to make our large accounts comfortable with the transition. An acquisition like this requires hundreds of action items involving nearly everyone at the company. We are excited by the challenge. With [annual] sales now close to $900 million, we’re on track to set a $1 billion sales goal. Speed Commerce also got what they wanted, which was to divest their distribution business and become a pure e-commerce player in a business with bigger margins. It also gave them an opportunity to refinance the company.”
The trajectory of Speed Commerce’s business was troubling. While sales in the e-commerce area were growing, sales in the distribution business had been declining for years. In 2009, the Navarre division sales were more than $599 million; fiscal year 2013 sales closed at $430.6 million. Declining sales also accompanied a growing net-operating loss-carry-forward that topped $82 million by 2013. Navarre’s gross-profit margin of only 9.85 percent propelled Speed Commerce to a 2013 operating loss of $11.8 million.
The company’s share price has dropped since January from $4.60 to $2.90 in mid-July. The five-year annual revenue growth is -29.13 percent. Speed Commerce is not offering any dividends to its stockholders. Of additional concern, Navarre did 72 percent of its business in 2013 with only four customers: Best Buy (34 percent), Walmart/Sam’s Club (16 percent), Staples (12 percent), and Apple (10 percent).
Furthermore, the company suffered an increase in losses from foreign-currency exchange. Since the Canadian operation’s payables and receivables are denominated in Canadian dollars, foreign-currency losses mounted from $129,000 in 2011 to $810,000 in 2013.
Distribution is a risky business. The delivered products are all physical, thus there is always a threat of an increase in downloading software-as-a-service application (SaaS) rather than from CD-ROMS. In the consumer market, business is seasonal, and customer tastes can change quickly. The industry is also exposed to increased product piracy. Navarre’s policies required no minimum purchase from its customers, allowed cancellation of contracts in 30 days without cause, and the agreements were all non-exclusive. In addition, certain customers received product on a consignment basis.
“This deal occurred in a compressed time frame,” says Richichi, “We signed a confirmation agreement with the investment banker back in February, but the real negotiations began at the end of May. That meant we put the final deal together in just 45 days. WYNIT worked with KeyBank on a large line of working capital to put together a consortium, which included HSBC and First Niagara.
“Speed Commerce had two banks involved in its negotiations. Each bank, of course, had its own team of lawyers. It really was like herding cats. My hat is off not only to the bankers for their … [responsiveness] but especially to Craig Wittlin, a partner in Harter, Secrest & Emery, and Bruce Pietraszek, a principal in Firley, Moran, [Freer & Essa, CPA, PC] who helped to keep negotiations on track. Special recognition goes to Randy Saputo, our CFO, who worked endless hours reviewing the figures to make sure they worked for WYNIT. And finally, successful negotiations happen only when the other party wants them to happen. Richard Willis, the president and CEO of Speed Commerce, moved things along and was a pleasure to deal with.”
Part of the WYNIT deal included hiring Navarre’s president, Ward O. Thomas. “Ward brings a lot of experience to WYNIT,” observes Richichi. “He will run the business from Minneapolis as the executive vice president, Navarre division, WYNIT Distribution.” Thomas’s employment agreement with WYNIT was effective on July 9, when his employment agreement with Navarre ended.
Lewis displayed his talent for selling in high school when he sold ads for the school yearbook and newspaper. He also sold portable calculators, leveraging the first three sales into 200. His career took him to Rochester where he managed an office-equipment company. He also garnered international sales experience working with his father. His move into the wholesale business began with the sale of copier components and supplies. When Canon asked him to become a wholesale distributor, he knew that he “had arrived.” Lewis graduated from the Rochester Institute of Technology in 1976. He resides in Providence.
Prior to joining WYNIT, Richichi was the national sales manager at Century Manufacturing and the vice president of sales, marketing, and engineering at SL Industries, before coming the vice president of sales at WYNIT in 1998. Lewis appointed him to the executive vice president position in 2005 before promoting him to COO in 2008. Richichi is responsible for the day-to-day operations of all corporate divisions.
Contact Poltenson at npoltenson@cnybj.com