6 Logue Court
Greenville, South Carolina 29615
Telephone: (864) 288-2432
Toll Free: (800) 944-2432
Fax: (864) 288-1165
Web site: http://www.scansource.com
Incorporated: 1992 as ScanSource, Inc.
Sales: $1.47 billion (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: SCSC
NAIC: 423430 Computer and Computer Peripheral Equipment and Software Merchant Wholesalers
ScanSource, Inc., is a leading specialty technology distributor. It supplies value-added resellers with bar code scanners and printers, magnetic stripe readers, and other tools for electronic inventory management. ScanSource has distribution centers in Memphis, Toronto, Mexico, and Belgium. Its offerings include more than 34,000 products from more than 60 manufacturers. Most of its more than 16,000 customers supply solutions to SMBs (small to medium businesses).
ScanSource was formed at the end of 1992 to service resellers of point-of-sale (POS) and auto identification (AutoID) equipment. This labor-saving technology allowed the transfer of data without manual input of each character and included such devices as bar code and label printers, laser scanners, and magnetic stripe readers. AutoID technology was spreading pervasively into many other uses aside from inventory control, materials handling, distribution, shipping, and warehouse management. Scientific researchers were discovering its uses as well. POS products included terminals, receipt printers, pole displays, cash drawers, and peripheral equipment. ScanSource was known as the only AutoID and POS distributor that did not sell to end users.
Gates/FA Distributing Inc. provided logistical support for the joint venture with one of its former CEOs, Steve Owings, who also had led the PC maker Argent Technologies, Inc. (Both companies were located in Greenville, South Carolina.)
By 1991, large retail chains were devotees of bar code scanners and printers. Although smaller businesses were beginning to use them in PC-based applications, these types of devices typically were not carried by microcomputer resellers. Cash register companies had been supplying this market. ScanSource's backers felt that therein lay an excellent opportunity to capture a large share of the $2.5 billion bar coding market.
The company started with 19 employees. Demand increased steadily from the beginning. Within a few months, ScanSource was representing about 20 vendors, including AutoID market leader Symbol Technologies Inc., Fargo Electronics Inc., and Star Micronics America. Business continued to pour in as retail inventory management grew more complex. At the same time, AutoID and POS equipment were becoming more standardized, less dependent upon proprietary technology. This was expected to spur growth in the AutoID segment at an annual rate of 14 percent through the end of the century. The AutoID market was valued at $2.2 billion; the POS equipment market was valued at $2.6 billion.
In May 1993, ScanSource bought Marietta, Georgia-based Alpha Data Systems Inc., a ten-year-old company. The transaction introduced a national client list to ScanSource. The purchase of the equipment distribution portion of MicroBiz Corporation of Spring Valley, New York soon followed. The transaction was valued at approximately $650,000. MicroBiz, a $4-million-a-year company, developed PC-based POS software for small retail stores.
ScanSource ended its first fiscal year in June 1993, having lost $243,242 on sales of $2.4 million in its first seven months. The next six months, however, saw a profit of $64,597 on sales of $6.5 million, and fiscal year 1993–94 ended with sales of $16.1 million and a $352,000 profit.
An initial public offering in March 1994 raised $4.6 million in capital. The stock was a lively seller and within a couple of months the share price had nearly tripled from $5 to $14. Gates/FA owned a 12.5 percent stake, while Stephen Owings owned 15 percent. Fast growth was part of the plan. Company founders expected to reach $100 million in sales within five years.
With Arrow Electronics Inc.'s impending acquisition of Gates/FA, ScanSource cut ties to its partner in July 1994. Arrow also had begun to compete in the POS market. ScanSource was compensated $1.4 million to make up for losing its warehouse partner.
ScanSource found an operational replacement for Gates/FA in MicroAge Inc. The firm's warehouse and MIS agreement began in the fall of 1994. MicroAge, however, did not provide financing support. MicroAge's warehouse facilities were located in Cincinnati.
Several new product lines enhanced ScanSource revenues in 1995: Epson America receipt printers, Zebra Technologies bar code label printers, and Micro-Touch POS touch screen monitors. PC-based POS units continued to rise in popularity in small retail applications. At the same time, the Windows operating system reached new levels of acceptance, prompting upgrading throughout the market. ScanSource competed against 50 other distributors in the POS market, including a dozen specializing in products for small business. Besides peripherals such as pole displays, cash drawers, and scanners, ScanSource also offered specialized software suited to various retail applications.
ScanSource revenues reached $90 million in 1996, when the company had 101 employees. ScanSource, which had an exclusive relationship with IBM, was well positioned when the computer maker unveiled its new PC-based SureOne POS system in February 1996. ScanSource expected to sell 10,000 units per year with an end price of about $3,000 each. IBM's new integrated system contrasted with the typical set-up patched together by resellers and was backed by more marketing savvy.
A leading data collection technology company, Intermec Corporation, tapped ScanSource to service its value-added resellers (VARs) in February 1997. Intermec cited ScanSource's experience with this particular market as a deciding factor in choosing the company. At this time, ScanSource already had a state-of-the-art shipping facility in Memphis, Tennessee, as well as regional sales offices in Canada and the United States.
ScanSource created its Professional Services Group to focus on hand-held, wireless data collection devices. Clients for these products required extra support through the installation process. ScanSource used special events to grow its market. The Solutions USA show, co-sponsored by Globelle, introduced hundreds of resellers to new products from dozens of vendors. Transition Marketing, Inc. was created in fiscal 1996 by ScanSource and Globelle Corporation to sponsor such trade shows. (Globelle later sold back its shares in the venture.) ScanSource also cooperated with vendors in advertising through trade periodicals, direct mail, and other promotional avenues.
In 1997 ScanSource acquired another PC-oriented distributor, POS ProVisions of Canada, for $4.3 million worth of stock. ProVisions had 15 employees and garnered $12 million in annual sales.
ScanSource created Catalyst Telecom in 1997 to distribute business telephone and computer telephony integration (CTI) products. Telephony products included business telephone systems and fax and data applications. ScanSource worked with Lucent Technologies to bring this to fruition, marketing Lucent's telephone handsets, cables, and voice mail equipment. ScanSource bought telephony company ProCom Supply the same year. In 1998 the company added The CTI Authority, Inc., a maker of computer-based voice messaging devices, which had sales of $8 million a year.
ScanSource boasted a compound annual growth rate of 80 percent between 1994 and 1997. Operating income increased at a 92 percent compound annual rate during the same time period. In its 1996–97 fiscal year, ScanSource had $2.5 million in profits on revenues of $93.9 million. It aimed to double sales in 1999 as the POS, AutoID, and telephony markets moved further away from direct sales. Employees numbered 131 in August 1997.
As PC-based applications began to become important in commercial security systems, ScanSource planned to enter that market as well, most likely through acquisition. An additional stock offering raised $26 million in capital that could be used toward this purpose. (The offering, delayed because of low share prices, had originally aimed for $32.5 million.) ScanSource also was considering expanding into the Canadian CTI market.
Lucent began to require ScanSource subsidiary Catalyst and other distributors to stock more parts for its switches to facilitate their timely delivery, rather than waiting for orders to be placed to begin building them. Having the distributors complete the assembly allowed the switches to be shipped in a matter of days versus up to six weeks.
We believe in honesty and integrity in everything that we do. There is no alternative. We highly value our customers and vendors and are committed to meeting their needs quickly and fairly. We believe each employee's opinion counts and deserves respect. We encourage innovation and creativity from every employee, in every department. Mistakes that arise from good intentions and hard work are distinguished from those arising from lack of effort or carelessness. We are committed to an environment that respects and values the diverse backgrounds, interests and talents of our employees. We protect our company resources to benefit those who depend on us, such as our employees and shareholders. We are committed to helping those less fortunate in our communities by giving our time, talents and resources.
ScanSource continued using road shows to recruit PC-oriented VARs to its line of POS, AutoID, and CTI products. TechTeach '99 featured educational seminars from some of the top vendors, such as IBM, Lucent, and Symbol, designed to help resellers enter new markets. PC VARs accounted for approximately half of ScanSource's 9,300 clients. The rest were specialty technology VARs.
In 1998 ScanSource launched Catalyst Commerce and the Internet Fulfillment Group to allow customers to place orders over the Internet. They also could check inventories and get delivery tracking information on-line.
Both ScanSource and Catalyst Telecom achieved ISO 9002 certification in 1999. The process was completed in just eight months. The ISO 9000-series documents internationally accepted standards of quality management and assurance.
ScanSource's new ventures-business telephones, Catalyst Commerce, CTI, and Canada-performed as well as its core bar code and POS business, according to Mike Baur, company president.
The rapidly growing company retooled its management team in January 2000. Company president Michael Baur took the CEO role as Steven Owings stepped down to lead the Catalyst Commerce unit while remaining chairman of ScanSource. Three new management positions were created around the same time.
Sales were $494.7 million in fiscal 2000 with income of $13.8 million. The figures continued to rise, reaching sales of $630.7 million in 2001 and income of $16.5 million. With such results, its shares fared better than many tech stocks. After plunging to $27 when the Internet bubble burst, within a year it was about $50 (though off a pre-bubble high of $73).
ScanSource acquired e-commerce solution provider Black Arrow Capital Inc. in March 2000. Black Arrow had developed a new web store aimed at bar code resellers. A leading POS supplier, NCR, was added to ScanSource's partners in November 2000. ScanSource was aiming to convince more resellers to carry POS equipment. Selling points were higher margins and compatibility with the PC and networking market.
Azerty, Inc.'s PositiveID unit, a distributor of bar code equipment, was acquired in 2001. Another significant acquisition was the purchase of Pinacor's computer telephony integration (CTI) sales unit.
In 2002 ScanSource opened a new unit, Reseller Services. It offered solution providers a web portal allowing their clients to access the entire ScanSource inventory online, while the resellers could set their own prices.
The federal government and healthcare providers were expected to be large markets for new wireless and Voice over IP (VoIP) solutions as well as the data collection tools that had been proven in manufacturing and distribution, CEO Mike Baur said in Computer Reseller News. The Catalyst Telecom unit was enlisting resellers for a new voice-and-data IP system from Avaya. NEC was another VoIP supplier for ScanSource.
In 2003 large retailers were making orders again, company CEO Mike Baur told VARbusiness . However, leading broadline resellers Ingram Micro Inc. and Tech Data Corporation were muscling into the POS arena. HP became a supplier to ScanSource around January 2004, offering an affordable, Web-enabled POS platform aimed at the SMB (small to medium business) market. ScanSource soon unveil Solution City, an online resource to help resellers provide solutions for ten specific markets.
Established a security unit in the fall of 2004. Around the same time, ScanSource joined Microsoft Corporation in developing specialized POS bundles for small to midsized businesses (SMBs) in the beer and wine, apparel, sporting goods, and gift markets.
Another new technology embraced by ScanSource was RFID. According to Computer Reseller News, Wal-Mart and the Department of Defense were mandating their suppliers collectively spend possibly billions of dollars to become RFID compliant. ScanSource's top RFID suppliers included Intermac, Zebra, and Symbol Technologies.
The company was expanding its business abroad. A sales office opened in Mexico in 2001. ScanSource acquired a U.K. AIDC and POS distributor and opened a European unit in Belgium in 2002 while entering the Latin American market through the acquisition of POS distributor NetPoint International. In 2005 ScanSource added a sales office in Toronto, a few years after an earlier office there had been closed. The company also maintained a branch in Vancouver. Europdata Connect UK Ltd. (EDC), which had offices in Britain, Sweden and the Netherlands, was acquired in April 2005.
Sales were up 23 percent in fiscal 2005 to $1.5 billion. Income rose 19 percent to $36 million. Forbes magazine ranked it 83rd on its list of the Best Big Companies in America. Business Week , Fortune , and others noted its remarkable growth year after year.
4100 Quest, LLC; ScanSource Properties, LLC; Partner Services, Inc. f/k/a ChannelMax, Inc.; ScanSource Security Distribution, Inc.; ScanSource Canada, Inc.; ScanSource de Mexico S de RL de CV (76%); Outsourcing Unlimited, Inc. (88%); Netpoint International, Inc. (76%); ScanSource France SARL; ScanSource Europe Ltd. (United Kingdom); ScanSource UK Ltd.; ScanSource EDC Ltd. (United Kingdom); ScanSource Europe SPRL (Belgium) ScanSource Germany GmbH; ScanSource Europe (Italia) Sede Secondaria.
Catalyst Telecom; Paracon; ScanSource.
Ingram Micro Inc.; Peak Technologies, Inc.; Tech Data Corporation; Westcon Group.
Bennett, Jeff, "ScanSource May Go on Acquisition Hunt," Greenville News , December 4, 1997, p. 6D.
Campbell, Scott, "Distributors Look Past the Pond," Computer Reseller News, March 11, 2002, p. 66.
——, "Lucent's Distributors Promise Faster Delivery of Switches," Computer Reseller News, January 4, 1999.
Del Nibletto, Paolo, "ScanSource Expands in Canada," Computer Dealer News, March 4, 2005, p. 8.
Dennis, Donnette, "Bar-Code Buy: ScanSource to Acquire Black Arrow," Computer Reseller News, March 13, 2000, p. 63.
DuPlessis, Jim, "Two South Carolina Companies Barely Touched by Recession," Knight Ridder/Tribune Business News, June 1, 2003.
Gresock, Sam, "Fortune Lists Two South Carolina Firms Among Fastest-Growing Businesses," State (Columbia, S.C.), August 16, 2001.
——, "Greenville, S.C.-Based Technology Firm Fills Three Management Positions," State (Columbia, S.C.), January 20, 2000.
——, "Stock in Greenville, S.C.-Based ScanSource Holds Steady," State (Columbia, S.C.), August 19, 2001.
Gros, Michael, and Edward F. Moltzen, "ScanSource Urges VARs to Focus on Verticals," Computer Reseller News, June 21, 2004, p. 43.
Hausman, Eric, "Mobile Solutions on Upswing," Computer Reseller News, May 19, 1997, pp. 47–48.
Lang, Steven, and Rob Wright, "ScanSource Continues Convergence PushSeeks 300 VARs to Cater to the SMB Market Via Its Catalyst Telecom Division," VARbusiness, February 7, 2005, p. 52.
Lingblom, Marie, "New Reseller Services Division, ScanSource Partners Laud Distributor's Support Services," Computer Reseller News, October 7, 2002, p. 156.
——, "ScanSource to Take Solution Providers Into New Verticals," Computer Reseller News, February 3, 2003, p. 56.
Linsenbach, Sharon, "ScanSource in Tune with RFID Wave," Computer Reseller News, October 25, 2004, p. 43.
——, "Specialty Retail SMB BundlesMarket Heats Up As ScanSource, Microsoft Add Fuel To POS Fire," Computer Reseller News, November 15, 2004, p. 14.
Longwell, John, "Gates F/A To Distribute Bar-Coding Hardware-Enters into Joint Venture with Ex-CEO," Computer Reseller News, January 11, 1993, p. 131.
——, "IBM Aims PC POS System at Channel," Computer Reseller News, January 22, 1996.
——, "Specialty Distributors Add Markets," Computer Reseller News, May 10, 1993, p. 115.
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Pepe, Michele, "Auto ID Spotlight TechTeach: Come One, Come All to POS Arena," Computer Reseller News, December 13, 1999,p. 127.
Pereira, Pedro, "Scanning the Field: Distributor Eyes New Markets," Computer Reseller News, March 2, 1998, pp. 57–58.
Rushing, R.W., "ScanSource Targets Point-of-Sale Niche," Computer Reseller News, May 23, 1994, p. 44.
"Scanning a New Venture," Computer Reseller News, August 16, 1993, p. 63.
Terdoslavich, William, "POS Specialists Mine Growth Niche," Computer Reseller News, October 20, 1997, pp. 34–35.
Thompson, Samantha, "ScanSource Goes Public, Stock Climbs," Greenville News, March 24, 1994, p. 7D.
——, "ScanSource Pulls Plug on Offering," Greenville News, March 25, 1997, p. 8D.
Werner, Ben, "Cash Registers Keep Ringing for ScanSource," State (Columbia, S.C.), January 30, 2005.
——, "CEO Pitches South Carolina-Based Scan-Technology Firm's Hot Sales in New York," State (Columbia, S.C.), June 21, 2004.
Wright, Rob, "ScanSource's POS Business Shines Brightly As It Signs on Its Newest Vendor Partner: HP," VARbusiness, January 12, 2004, p. 60.
——, "ScanSource Surges Beyond Point-Of-Sales Under CEO Mike Baur, ScanSource Has Also Expanded, Regionally and Technologically," VARBusiness, September 13, 2004, p. 72.
—Frederick C. Ingram