MCSi, Inc. - Company Profile, Information, Business Description, History, Background Information on MCSi, Inc.

4750 Hempstead Station Drive
Dayton, Ohio 45429

Company Perspectives:

MCSi is a premier reseller and advanced systems integrator of computer technology and visual communications products, technologies and technical support services. Serving more than 50,000 corporate, governmental, medical, educational and institutional clients, MCSi is the nation's largest computer technology and visual communications reseller, with more than $850 million in sales and 126 locations throughout the U.S. and Canada.

History of MCSi, Inc.

MCSi, Inc., formerly known as Miami Computer Supply Corporation (MCSC), spent its first 15 years as a privately held computer and office automation supply company. Founded in 1981, the Ohio-based distributor services a wide range of corporate, governmental, and institutional customers.

Growth through Acquisitions, 1996-99

MCSC became a public company in November 1996. At the time of its initial public offering (IPO) the company had only 53 employees. Following its IPO, MCSC embarked on an aggressive acquisitions program. From November 1996 to the end of 1999, MCSC acquired ten regional computer and office automation supply companies and 12 audio-visual/broadcast presentation products and systems integration companies. The company's annual revenue grew from $63.4 million in 1996 to $686.7 million in 1999.

In 1998 MCSC made several acquisitions, including Axidata Inc., a Toronto-based computer supply company with annual sales of about $150 million. It was MCSC's first Canadian acquisition. Toward the end of 1998 MCSC acquired Dreher Business Products of Strongsville, Ohio, located near Cleveland. The company had annual sales of $80 million and more than 200 employees. It sold computer hardware and software, a variety of office supplies, and offered computer training, network design, and hardware configuration services. The acquisition of Axidata and Dreher would increase MCSC's annual sales from around $320 million to more than $550 million.

Around this time MCSC implemented an electronic commerce solution with two online catalogs: one for its traditional corporate customers and one for the small office/home office (SOHO) marketplace. MCSC turned to an outsourcing company, Information Engineering Corp., to plan and manage all phases of its e-business implementation, which would run on MCSC's IBM AS/400 mainframes that formed MCSC's information technology backbone. With the new e-business solution, MCSC's static web site was transformed into a dynamic e-commerce site. Orders placed at the web site could be seamlessly processed by the company's existing inventory systems.

In January 1999 MCSC launched an Internet subsidiary, Zengine, Inc., whose mission was to run Internet web sites for companies and portals that wanted to sell products and services through their own Internet storefronts. Internet portals such as Microsoft Network, America Online, and GeoCities typically sent visitors to other sites to make purchases. Zengine would combine its own Internet expertise with MCSC's expertise in merchandising and shipping to run the back end for companies and portals that wanted to sell over the Internet.

Zengine was based in Fremont, California, and started with 20 employees, plus 10 MCSC workers assigned there. Joe Savarino, who formerly worked for an online advertising technology company, was hired to be Zengine's president. Two former employees of Excite&#064Home, Lalit Dhadphale and Chris Feaver, were also hired. Feaver became Zengine's 22-year-old chief technology officer. Later in the year Zengine announced a multiyear contract with Excite&#064Home for Zengine to create an online shopping area for audio-visual products on Excite&#064 Home's recently launched business-to-business portal. Excite&#064Home and investment banking firm William Blair & Co. took minority stakes in Zengine.

In August 1999 MCSC made its 18th acquisition since going public by purchasing Technical Industries Inc. of Atlanta, Georgia. Technical Industries was an integrator of audio-visual products and had annual sales of about $33 million. Earlier in the year MCSC had acquired another presentation products integrator, AVS of Dayton, Ohio.

In October 1999 MCSC announced it would change its name to MCSi, Inc., an acronym for the company's Media Consultants and Systems Integration business unit, which accounted for about one-third of the company's revenue. The multimedia unit designed, installed, and supported audio-visual, videoconferencing, and other multimedia equipment and systems. The name change became official in June 2000.

MCSC had a good year in 1999. Net sales increased 119 percent to $686.7 million from $313.8 million in 1998. Earnings per share increased 43 percent, while operating income grew 109 percent to $28.6 million from $13.7 million in 1998. The company's workforce of nearly 1,900 included more than 400 technical resources professionals and 600 sales representatives. At the end of 1999 MCSC was reselling more than 1,800 core products manufactured by some 500 OEMs, primarily to corporations and governmental, educational, and institutional customers.

Recognized as a Fast-Growing Company, 2000

Three previously announced acquisitions were completed in January and February 2000. The first was Video Images Inc. of Milwaukee, Wisconsin, which had annual sales of about $16 million and sold primarily in the Milwaukee and Chicago markets. The second involved Fairview-AFX, Inc., an audio-visual integrator and provider of professional video systems. Fairfax-AFX was based in Tulsa, Oklahoma, and had annual revenue of about $15 million. Also in February MCSC completed its acquisition of Duo-Communications of Canada Ltd. (DuoCom). DuoCom sold audio-visual products and had $25 million in sales through locations in Montreal, Toronto, Ottawa, Quebec City, Moncton, and Vancouver.

In February 2000 president and CEO Michael Peppel succeeded Anthony Liberati as chairman of MCSC. Liberati, who had served as chairman since 1996 and was instrumental in taking the company public, would remain a director of MCSC's Internet subsidiary, Zengine. Around this time the company changed its NASDAQ stock symbol to MCSI. In announcing the change, Michael Peppel said, "We are now the largest advanced systems integrator of visual communications products and services in North America. MCSi, Inc. is beginning a new brand identity campaign using our trademarked logo MCSi and thus, listing under the symbol MCSI will help us accomplish this very important goal." In June 2000 the company officially changed its name to MCSi, Inc., with the corporate tagline, "Media Consultants, Systems Integrators."

The pace of acquisitions slowed somewhat in the second half of 2000, when MCSi's acquisitions focused on audio-visual products integrators. Companies acquired by MCSi included Midwest Visual Communications, Inc., which strengthened MCSi's position in Chicago and the midwestern states of Illinois, Wisconsin, Indiana, and Michigan. Midwest Visual was a 60-year-old audio-visual products integrator with about $45 million in annual sales. MCSi also acquired Westek Presentation Systems, Inc. of San Diego. This audio-visual products integrator had annual revenue of some $14 million.

MCSi also acquired audio-visual products integrator Intellisys, Inc. as part of a proposed Chapter 11 reorganization of Intellisys. Intellisys was headquartered in Westlake Village, California, and had annual revenue of $150 million. The acquisition of Intellisys was completed in January 2001. Before the end of 2000 MCSi announced it would acquire AV Associates, Inc., an audio-visual products integrator based in Storrs, Connecticut, with $18 million in annual revenue. To help finance its acquisition of AV Associates Inc., MCSi raised some $5 million through a private placement of common stock in January 2001.

In June 2000 MCSi divested its Azerty Canada business to United Stationers Supply Co., a subsidiary of United Stationers Inc., which had acquired Azerty's U.S. and Mexican businesses in 1998. Azerty Canada was MCSi's wholesale operation and generated about $115 million in annual sales. The divestiture was part of MCSi's strategy to focus on its core competencies, which Michael Peppel characterized as "bringing computer and communications technology together. Our focus is on value-added convergent technology solutions that combine the power of data, voice and visual communications products in useful, flexible and integrated systems."

That MCSi was a fast-growing company was confirmed by Fortune magazine, which ranked the company second on its 2000 list of "100 Fastest-Growing Companies." The ranking was based on the company's revenue growth of 134 percent for the past three years. MCSi's revenue growth was attributed to growth in the systems integration business, increased sales penetration, increased product offerings, and the impact of acquisitions.

Toward the end of 2000 MCSi was again on track for a record year. For the first nine months of 2000 net sales were up 34 percent, operating income rose 42 percent, and net income increased 42 percent. Earnings per share also rose 29 percent. Contributing to the company's strong performance was the ongoing convergence of data, voice, and video communications products.

The year 2000 was also a significant year for MCSi's Internet subsidiary Zengine. Zengine's business involved providing a comprehensive suite of technology-based solutions to companies that wanted to conduct electronic commerce, both for business-to-business and business-to-consumer e-commerce. Services provided included web site user interface design, product content and merchandising, personalization and customer relationship management, advertising and sponsorship management, order management, inventory management and order fulfillment, end-user customer service, and reporting and analysis. Zengine was able to provide these services as part of a complete turnkey package as well as individually. At the end of August, Zengine opened an office in Tokyo, Japan, to market its technology-based solutions in the Asia-Pacific region.

In September Zengine completed its initial public offering (IPO), selling 4.29 million shares at $13 per share. The stock began selling on the NASDAQ National Market under the symbol ZNGN on September 21, 2000. Following the IPO MCSi owned about 70 percent of Zengine's stock.

In January 2001 MCSi received an interesting offer from Anthony Liberati, MCSi's former chairman and currently a director of Zengine. Liberati offered to purchase all of the outstanding common stock of MCSi for $22 a share in cash. Following a meeting of its board of directors, MCSi announced it had hired investment banking firm William Blair & Co. of Chicago to investigate strategic alternatives. It remained to be seen whether MCSi would accept Liberati's offer.

Principal Subsidiaries: Diversified Data Products, Inc.; Consolidated Media Systems, Inc.; Axidata Inc. (Canada); Central Audio Visual, Inc.; C & G Video Systems; Duo Communications, Inc. (Canada); Audio Visual Systems, Inc.; Technical Industries, Inc.; Video Images, Inc.; Fairview AFX; Zengine, Inc. (69.5%).

Principal Competitors: CompUSA Inc.; Ingram Micro Inc.; Tech Data Corp.


Additional Details

Further Reference

Bischoff, Laura A., "Kettering, Ohio-Based Miami Computer Supply Corp. Buys Atlanta Firm," Knight-Ridder/Tribune Business News, August 9, 1999.------, "Kettering, Ohio-Based Technology Supplier Forms E-Commerce Subsidiary," Knight-Ridder/Tribune Business News, September 2, 1999.------, "MCSI Targeted for Takeover Bid," Dayton Daily News, January 23, 2001, Bus. Sec.Dillon, Jim, "Kettering, Ohio, Computer Supplier Continues to See Record Earnings," Knight-Ridder/Tribune Business News, October 21, 1999."MCSi Inc.," Private Equity Week, January 22, 2001, p. 7."Miami Computer Supply Corp.," Business First-Columbus, February 18, 2000, p. 15."Miami Computer Supply Corp.," Business First-Columbus, June 23, 2000, p. 18.Suttell, Scott, "Sale to Dayton Distributor to Drive Dreher's Growth," Crain's Cleveland Business, November 30, 1998, p. 1.Swoyer, Stephen, "Miami Supply Opens up for E-Business," Midrange Systems, April 5, 1999, p. 26.Tresslar, Tim, "MCSI Panel Explores Equity Groups' Offers," Dayton Daily News, April 27, 2001, Bus. Sec.------, "Ohio-Based Computer Supply Company to Buy Canadian Firm," Knight-Ridder/Tribune Business News, December 15, 1999."Video Images Inc.," Business Journal-Milwaukee, December 17, 1999, p. 35.

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