InaCom Corporation

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InaCom Corporation

10810 Farnam Drive
Omaha, Nebraska 68154
U.S.A.
(402) 392-3900
Fax: (402) 392-7214

Public Company
Incorporated: 1991
Employees: 1,883
Sales: $1.54 billion
Stock Exchanges: NASDAQ
SICs: 5045 Computers, Peripherals & Software; 6794 Patent Owners & Lessors

The third-largest and most profitable computer distributor in the United States, InaCom Corporation was formed in 1991, when ValCom Inc. and Inacomp Computer Centers Inc. merged. The resulting company represented an immediate force in the retail computer services industry. In a few short years, InaCom became considerably larger, negotiating several pivotal deals that positioned it as one of the most successful, high-growth companies in the country. During the mid-1990s, InaCom marketed and distributed information technology products and services through a network of more than 1,500 business locations for a wide range of manufacturers.

When William L. Fairfield started selling computer systems for Valmont Industries, Inc. in 1982, he hoped to bring the agricultural community surrounding Valley, Nebraska, into the computer age. Valmont Industries, a manufacturer of electric power transmission and irrigation equipment based in Nebraska, had created a subsidiary named ValCom Inc. to market a unique line of computer software tailored to the needs of local farmers; it was Fairfield’s job to convince these farmers that they too could benefit from the rapid advancements being achieved by the computer industry. A Nebraska native with an M.B.A. from Harvard, Fairfield unfortunately discovered that he was pursuing clientele that, as it turned out, did not demonstrate any discernible desire to join the computer age, at least not with ValCom’s software. When Fairfield realized the focus of ValCom’s business was obscured, the new direction he took quickly turned Valmont Industries’ sideline business into one of the largest and most profitable computer distributors in the United States.

Before ValCom’s rapid maturation into an industry leader, the subsidiary languished as a developer and marketer of agricultural software, failing to derive any substantial business from the sale of its narrowly focused computer programs. Swine Management and Poultry Farm Management, two of the numerous software programs Fairfield was attempting to sell, proved to be poor performers and rested on dust-gathering retail shelves. Fully aware that ValCom’s agricultural software programs were producing lackluster results, Fairfield turned to market research, looking for a solution to ValCom’s woes. From such a study, Fairfield made an important discovery. The majority of ValCom’s customers were not farmers, but were local bankers, shopkeepers, and lawyers; people with little use for Swine Management software, yet drawn to ValCom’s retail outlets by the service and training provided with the personal computers they purchased. Fairfield’s findings rerouted ValCom toward the proper and profitable direction. The subsidiary abandoned the market for software products like Swine Management and concentrated instead on selling computer hardware and providing computer services to small businesses, creating the foundation for what would become in less than a decade a billion-dollar computer services and distribution force.

By 1987, ValCom had grown into a successful enterprise, generating $164 million in sales that year, enough to convince Valmont Industries’ management that its subsidiary could stand on its own. Valmont Industries spun off ValCom in 1987, selling 1.1 million common shares of its subsidiary for approximately $12.1 million, or 25 percent of ValCom, through an initial public offering in September. Before the year was through, ValCom was an entirely publicly owned company poised to strengthen its presence in the computer distribution industry.

With Fairfield at the helm, serving as the company’s president and chief executive officer, ValCom generated $231.8 million in sales after its first year of operation as a separate corporate entity and recorded $5 million in earnings, a 38 percent increase from 1987’s total. During the year, ValCom began its climb toward becoming one of the largest chain of retail computer stores by acquiring a New Jersey-based chain named Clancy Paul Inc. The $3.8 million acquisition gave ValCom six Clancy Paul computer centers and five new centers in the southwestern United States, setting the tone for the years ahead when ValCom would strengthen its geographic network of retail locations through acquisition and affiliations.

By 1989, ValCom was the fourth-largest chain of retail computer stores in the nation, collecting $359 million in sales and supported by 181 ValCom business centers spread across 16 states. By selling hardware manufactured by IBM, Compaq, NEC, and AT&T, as well as computer equipment produced by other manufacturers, ValCom was fast becoming a giant retailing competitor, relying on the service and technical assistance it provided to outdistance the competition. In the years ahead, its concentration on service coupled with a shift toward selling large computer systems less vulnerable to competition from low-priced computer clones would enable the company to withstand the damaging affects of a nationwide recession. In the economic downturn set to unfold, the retail computer industry would become increasingly competitive, a development that compelled ValCom to intensify its efforts toward growth. It was either acquire or be acquired in the coming decade, years during which the retail industry consolidated in the face of growing competition and declining sales. Against this backdrop, Val-Com moved forward, intent on becoming one of the consoli-dators rather than a target for some other retail chain.

In 1990, ValCom resumed its acquisitional approach toward growth, purchasing the computer division of The Office Works, Inc. for $8 million in July and the communications division of Terra International, Inc. in December. However, these events were overshadowed by what occurred in 1991, when ValCom became part of a new, much larger corporate organization called InaCom Corporation. In April 1991, ValCom and Inacomp Computer Centers Inc., a Troy, Michigan-based computer retailer and service provider, announced they had signed a definitive agreement to merge—a partnership that would combine ValCom’s $428 million in 1990 sales with Inacomp’s $500 million sales total. In August the merger was concluded, creating a nearly billion-dollar computer retailer that ranked in sales just behind Intelligent Electronics Inc., ComputerLand Corp., and then-struggling Businessland Inc. With 685 company-owned stores, franchise branches, and affiliated dealers across the country, ValCom, now known as InaCom, had made a tremendous leap toward attaining the geographic presence necessary to compete in the fiercely competitive 1990s. Importantly, ValCom gained Inacomp’s network of Fortune 1000 oriented dealers and superstores as a complementary addition to its own stalwart presence in smaller markets. Together, the two companies increased their ability to attract corporate customers by virtue of the full-range of services that they could provide and their greater presence nationwide, giving InaCom a solid and broad base upon which to grow.

Fairfield was named the new company’s president and chief executive officer, retaining the same corporate titles he had held at ValCom, while Richard Inatome, Inacomp’s president and chief executive officer, was selected as InaCom’s chairman. Under the stewardship of these two leaders, InaCom reorganized one month after the merger was concluded in an effort to orchestrate an efficient integration of ValCom’s and Inacomp’s resources. Mid-level administrative positions that became superfluous once the two companies merged were eliminated, resulting in a loss of 125 jobs, or seven percent of InaCom’s work force, and certain branch locations were consolidated. Retail and service outlets that competed in the same markets were combined, as were some of the smaller, non-competing branches, which were consolidated into larger, more efficient locations.

By the end of InaCom’s first full year of operation, sales had eclipsed the billion-dollar mark, rising to a robust $1.01 billion from the $680 million recorded in 1991. Net income shot up as well, bounding from just over $2 million to nearly $12 million; further, income levels promised to rise considerably higher after InaCom entered into a pivotal arrangement with another computer retail chain in December 1992. Whereas the merger of ValCom and Inacomp had extended the company’s geographic reach in the United States, its alliance with Paris-based International Group (ICG) gave InaCom a commensurate boost to its international presence. The December 1992 alliance with ICG, one of the largest computer services companies in Europe, allowed InaCom to provide its U.S.-based multinational clients with a valuable service—the coordination of the design, purchase, installation, and support of their global information systems through one source. Instead of having to search for a computer supplier overseas and then spending time to acquaint the foreign supplier with the company’s business and its particular needs, InaCom’s corporate clients could arrange all details through InaCom. In turn, ICG’s European and Asian corporate customers could use InaCom’s numerous U.S. locations for service and support to their U.S.-based businesses.

The alliance with ICG was perceived as an excellent strategic move on the part of Inatome and Fairfield, but before the praise became monotonous, InaCom made another signal move a month after linking forces with ICG. In January 1993, InaCom announced its intentions to acquire the majority of Sears Business Centers operated by Sears, Roebuck & Company through the retail giant’s Sears Merchandising Group. Sears, over the course of the previous few years, had been divesting properties deemed inconsistent with its core retailing business; among the properties slated to go were the company’s computer retail and services centers, launched in 1981 to sell computers and provide computer network integration services to large corporations. By 1993, the number of Sears Business Centers had grown to 49, and their inclusion in the InaCom empire represented an ideal opportunity to advance Inatome and Fairfield’s strategy to increase its national presence in marketing services and the telecommunications field.

In February 1993, the transaction with Sears was completed. InaCom paid $5.8 million and assumed certain liabilities for 44 of 49 Sears Business Centers, properties that generated $436 million in 1992 sales. Twenty of the branches acquired were located in markets where InaCom did not maintain a presence, which increased the number of InaCom’s affiliated locations to more than 1,200, while the remainder were merged into existing franchises. Summing up InaCom’s rapid expansion over the previous three years, Fairfield declared to PC Week after the acquisition of the 44 Sears Business Centers, “What we have now is true national coverage.” Aside from gaining a greater national presence, InaCom also gained an entirely new type of client with its Sears Business Centers acquisition, inheriting a $400 million U.S. Department of Defense contract to supply 75,000 notebook and laptop computers. Sears Business Centers had been awarded the contract a year prior to InaCom’s acquisition.

The addition of the 44 Sears Business Centers were expected to increase InaCom’s sales 50 percent once the properties were fully absorbed into the InaCom organization, a prodigious leap in sales for a company that had recorded several revenue increases of a similar magnitude. Perhaps more impressive, the company’s vigorous rate of expansion was achieved alongside equally prolific increases in its net income, making InaCom the most profitable computer distributor and retailer in the country. As InaCom entered the mid-1990s, buoyed by its strong international presence through its affiliation with ICG and its enviable market position throughout the United States, it figured to be one of the leading companies of its kind for the remainder of the decade and into the 21st century.

Principal Subsidiaries

ValCom Computer Centers, Inc.; Clancy-Paul, Inc.; ValCom Southwest, Inc.; Business Technology Group, Inc.; Strategic Products and Services, Inc.; ValCom Mid-Atlantic, Inc.; VTC, Inc.; Inacomp America, Inc.; Inacomp Computer Centers of Georgia, Inc.; Inacomp Financial Services, Inc.; I.C.C. of Florida, Inc.; Inacomp Computer Centers of California, Inc.; Inacomp Computer Centers, Inc.; Inacomp Southwest, Inc.; InaCom Business Centers, Inc.