Pomeroy Computer Resources, Inc.

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Pomeroy Computer Resources, Inc.

1020 Petersburg Road
Hebron, Kentucky 41048
U.S.A.
Telephone: (606) 586-0600
Fax: (606) 586-4414
Web site: http://www.pomeroy.com

Public Company
Incorporated: 1992
Employees: 1,699
Sales: $756.8 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: PMRY
NAIC: 44312 Computer and Software Stores; 541512 Computer Systems Design Services

Pomeroy Computer Resources, Inc. is a value-added reseller of desktop computer equipment and a provider of related technology services. The company has 30 regional offices located in 14 states throughout the Southeast and Midwest. Its customer base is comprised of large and medium-sized commercial, health governmental, educational, and financial organizations.

Pomeroy operates in two industry segments: products and services. The products segment, which accounts for almost 90 percent of the company’s total revenue, includes the sale, leasing, and distribution of computer hardware, software, and related products from more than 35 major technology manufacturers. The company’s services segment is broken down into three categories: lifecycle services, internetworking services, and customer support services. Under the lifecycle category, Pomeroy provides repair and maintenance; installations, moves, and changes; and asset redeployment and tracking. Internetworking services includes project management; network design, integration, and management; and cabling services. The company’s customer support services consist of Internet-based training, customized help desk services, and videoconferencing and teleconferencing technologies.

ComputerLand Beginnings: 1981-91

David Pomeroy was working as a finance manager for a car dealership on the outskirts of Cincinnati when he decided to become a computer dealer. Since moving to the Cincinnati area in 1970, the independent-minded Pomeroy had grown increasingly certain that he wanted to own and operate his own business, and by the late 1970s, he was ready to make his move. As it happened, his personal entrepreneurial urges coincided with the dawning of a new era in the computer industry—the age of the personal computer. Pomeroy began looking for a way to get in on the action.

Until the early 1970s, computers had been prohibitively expensive for the average individual and were used almost exclusively by businesses, universities, and government. By the mid-1970s, however, computer manufacturers were able to condense an ever-increasing amount of power on an ever-smaller microchip. These improvements in technology led to lower prices, making home computers for the first time an affordable option for average consumers. In 1975 the nation’s first retail computer store opened in Santa Monica, California.

A year later, Steve Jobs and Steve Wozniak formed the Apple Computer Company and introduced the Apple II personal computer. Clever advertisements for the new computers in the Wall Street Journal caught the eye of David Pomeroy. Pomeroy, who was just then in the process of deciding what kind of business to start, was taken with the idea of selling Apple computers. Apple, however, turned down his request to become a dealer. Still determined to get into the computer business, Pomeroy contacted ComputerLand, a California-based chain of computer outlets. As it happened, ComputerLand was just then looking for a franchisee in the Cincinnati market. Pomeroy sent in a deposit to secure the franchise rights and, in 1981, opened Cincinnati’s first ComputerLand.

Pomeroy’s timing was superb. Shortly after he opened his store, industry giant IBM entered the personal computer arena with the introduction of the 5150 PC personal computer—a DOS-supported, 4.77 megahertz machine, starting at $1,565. With the introduction of its PC, IBM began using outside distributors to sell its products for the first time ever. Pomeroy jumped at the opportunity. “I was the first dealer to sign up for IBM,” he said in an April 1994 interview with the Kentucky Post.

Although Pomeroy entered the computer business at a time when more people were buying PCs for personal use, the majority of his sales still came from businesses and organizations. For the first several years, noncorporate customers accounted for only 20 percent of Pomeroy’s sales. That percentage decreased in the early 1990s, when large electronics stores began offering personal computers—drawing individual, non-business consumers away from computer specialty stores. Faced with increased competition from these big box retailers, Pomeroy focused his attention on what was already his core customer base: businesses.

He knew that servicing corporate accounts meant more than simply selling hardware. One of the most basic demands of corporate customers was that their computer systems be configured, or customized, to meet specific requirements.

ComputerLand already offered this service, as did virtually all computer resellers. But Pomeroy’s range of services went beyond mere configuration. Many of his customers at that time were businesses just on the verge of converting to computer systems. Often, their experience with computers was fairly limited. Faced with rapidly evolving technology and a multiplicity of options, these customers needed someone to hold their hand through the entire conversion process. Pomeroy filled that need by offering a wide range of services—from helping them choose the right system to installing it for them, to offering employee training to providing follow-up maintenance.

In 1990 Pomeroy won a contract with Procter & Gamble (P&G) that was to prove pivotal in his store’s growth. In addition to locking in a substantial amount of business, the P&G contract—in effect, a stamp of approval from a highly respected company—enhanced Pomeroy’s credibility. Within just a few years, the company had secured a whole host of major corporate clients, including Kroger, Kentucky Fried Chicken, Long John Silver’s, and the Commonwealth of Kentucky.

Being Independent: 1992-94

Pomeroy had never especially wanted to be a franchisee. He disliked the associated costs and the control exerted by headquarters and had taken the ComputerLand franchise in 1981 only because it appeared to be the best way to break into the business. By the early 1990s, however, Pomeroy was ready to free himself from ComputerLand dictates and go it alone.

In early 1992, he reorganized his business as Pomeroy Computer Resources, Inc. (PCR), an independent company providing computers sales and support to corporate customers. In conjunction with the reorganization, Pomeroy went public, selling 1.1 million shares and generating $8.8 million.

Using funds from the initial public offering (IPO), Pomeroy began pursuing expansion opportunities in markets he believed were underserved by PCR’s larger competitors. The new company branched out geographically right away, making its first acquisition just months after completing the offering. The purchase was C&N Corporation, a computer products provider with locations in Knoxville, Tennessee and Jacksonville, Florida.

The years 1993 and 1994 brought still more expansion, with the acquisition of Connecting Point, a computer retailer in Louisville, and Xenas Communications Corp., a provider of communications products and services based in Cincinnati. The latter purchase was a particularly farsighted one; Pomeroy felt certain that the videoconferencing and teleconferencing services offered by Xenas would be merging with the computer industry in the coming years. He believed that having the technology already in place would put PCR ahead of the game.

The company proved remarkably adept at integrating its acquisitions, and its profits soared. In 1993 its first full year as an independent, publicly held company, PCR reported net income of $1.9 million—a 171 percent gain from 1992’s $702,000. Another healthy gain in 1994 gave Pomeroy year-end profits of $2.73 million on revenues of $144.58 million.

In 1995, as business continued to grow, Pomeroy broke ground on a new 100,000-square-foot distribution center and a 40,000-square-foot corporate headquarters in Hebron, Kentucky, just outside Cincinnati. By early 1996, the company had moved into its new facilities.

Focusing on Services: 1996-97

Since his ComputerLand days, Pomeroy had understood the importance of offering a wide array of technical services, as well as computer hardware. Accordingly, he had invested substantial resources in building up the service side of the business in addition to the products side. In the mid-1990s, however, the company made a calculated shift in direction, a strategic decision to make service the core of its business. “We’re migrating to being a systems integrator,” Stephen Pomeroy, David Pomeroy’s son and PCR’s vice-president of marketing, said in a December 1996 interview with Computer Reseller News.

Company Perspectives:

Pomeroy Computer Resources, Inc. is a full-service computer integration company, providing a comprehensive assortment of professional services from consulting to procurement to configuration to asset management to ensure complete customer satisfaction and corporate sustainability. This statement serves as a guideline, ensuring that all the employees of Pomeroy Computer Resources’ strategy and tactics are focused upon two critical elements —customer satisfaction and profitability. We believe that the two go hand in hand.

The decision to focus on service was followed by a flurry of appropriately service-oriented acquisitions. In March 1996, PCR purchased The Computer Supply Store, a Des Moines, Iowa computer reseller and services provider. A few months later, the company acquired AA Microsystems, of Birmingham, Alabama, a small network systems integrator. In October 1996, Pomeroy made its third acquisition of the year: Dilan Inc., a network integrator based in Hickory, North Carolina, with offices in Charlotte, Raleigh, and Winston-Salem, North Carolina, and Greenville, South Carolina. Dilan had been primarily a technology services provider since its inception in 1989, with a focus on networking—establishing large, interconnected systems of computers. Its background and expertise made it a particularly good fit for Pomeroy’s new strategy.

The year 1997 saw three more acquisitions. In June, Pomeroy purchased Magic Box Inc., a network integrator located in Miami, Florida. The following month, the company acquired Micro Care, an Indianapolis-based provider of computer services. The final acquisition of the year, completed in October, was The Computer Store, a Columbia, South Carolina network integrator. Altogether, Pomeroy made six acquisitions in 1996 and 1997, expanding into nine new locations and adding a combined total of almost $96 million in annual sales.

Pomeroy’s decision to focus on providing services, rather than reselling hardware, was proving a highly practical one from a financial perspective. Because profit margins in the services area were almost four times higher than in the hardware distribution business, the company’s new service-related acquisitions had a very positive impact on its bottom line. In 1997, for example, more than half of Pomeroy’s profits came from its services segment—even though that segment accounted for only 12 percent of total revenue.

In early 1997, Pomeroy was selected by IBM to participate in its new Authorized Assembly Program. As a member of the program, Pomeroy was allowed to purchase IBM computer components and use them to assemble computers that met customer specifications. This allowed PCR to keep inventory to a minimum and to offer customers an even broader range of customization options. Being chosen for the program also served to further boost PCR’s reputation for professionalism; the company was one of only 19 IBM resellers worldwide to be designated as authorized assemblers.

Also in 1997, Pomeroy established a new business division to serve the growing number of organizations and companies that wanted to lease, rather than purchase, computer systems. Computer leasing was rapidly becoming a favored option for many organizations, as the pace of technological advancement made frequent computer upgrades or replacements a necessity. Pomeroy’s new division—Technology Integration Financial Services—offered clients lease packages that included hardware, installation, services, maintenance, and cabling. Leasing was not new to Pomeroy. Since 1989, the company had leased a small percentage of its systems through a joint venture with a Cincinnati-based leasing company. As the interest in leasing increased, however, moving the business in-house became more economically sensible.

Pomeroy Select Integration Solutions: 1998-99

Pomeroy continued to build its service business through acquisitions in 1998. In March, the company acquired Global Combined Technologies Inc., a reseller and integrator headquartered in Oklahoma City, with additional facilities in Tulsa, Oklahoma and Dallas, Texas. Global was Pomeroy’s largest purchase to date, with 120 employees and almost $80 million in annual revenues. Also in March, the company finalized the acquisition of the Richmond, Virginia-based Commercial Business Systems Inc., a much smaller systems integrator. Pomeroy made its final 1998 acquisition in December, purchasing Access Technologies, Inc., a Memphis, Tennessee telecommunications and networking provider.

Also in 1998, Pomeroy made the division between its products and services segments more formal by establishing a wholly owned subsidiary—Pomeroy Select Integration Solutions (PSIS)—to house all of its services business. A January 15, 1999 press release stated that the company formed the subsidiary to “provide a separate identity for its IT services business, to foster the continue growth of such business, and to enable PSIS to better attract and retain technical personnel.” Shortly after it was formed, Pomeroy Select filed a registration with the SEC for an initial public offering.

Steady expansion of the services business continued throughout 1999, via both acquisition and internal growth. In May, the company purchased Systems Atlanta Commercial Systems, Inc., a Georgia-based systems integrator and provider of technology staffing. Three months later, a second acquisition—of Acme Data Systems in Columbus, Ohio—was completed. Acme specialized in networking and large enterprise installations. Also in 1999, Pomeroy opened a new regional sales and services office in Little Rock, Arkansas. The Systems Atlanta acquisition and the opening of the Little Rock branch gave the company entry into two new states.

The year 1999 also saw the signing of several key contracts for Pomeroy. Between March and August, the company won ten one-year contracts with various organizations, including IBM and the State of Arkansas. Together, the contracts were expected to generate between $90 and $110 million for Pomeroy. The company also secured a three-year contract with Procter & Gamble, which was estimated to be worth more than $75 million.

Key Dates:

1981:: David Pomeroy opens a ComputerLand franchise in Cincinnati, Ohio.
1990:: Pomeroy wins contract with Procter & Gamble.
1992:: Pomeroy severs ties with ComputerLand, reorganizes as Pomeroy Computer Resources, Inc., and completes an initial public offering (IPO).
1996:: PCR makes a strategic shift in focus toward technology services.
1998:: Pomeroy forms a wholly owned subsidiary, Pomeroy Select Integration Solutions, to hold its services business.
1999:: Pomeroy Select Integration Solutions files registration statement for an IPO.

2000 and Beyond

As Pomeroy prepared to move into the future, it appeared to be ideally positioned for more rapid growth. Demand for both computer hardware and support services was expected to remain strong, keeping the company’s revenues high and allowing it to continue expanding into new geographic markets.

In the future, as in the past, Pomeroy’s growth was likely to depend heavily upon acquisitions in the technology services sector. The company’s expansion was expected to be fueled, in part, by funds from the planned public offering of Pomeroy Select Integration Solutions stock. No official date had been set for the offering, but company representatives expected that it would take place in 2000.

Principal Subsidiaries

Global Combined Technologies, Inc.; Pomeroy Computer Resources of South Carolina, Inc.; Pomeroy Select Integration Solutions, Inc.; Technology Integration Financial Services, Inc.; Xenas Communication Corp.

Principal Competitors

ASI Corp.; En Pointe Technologies, Inc.; European Micro Holdings, Inc.; Manchester Equipment Co., Inc.; Micros-To-Mainframes, Inc.; Multiple Zones International, Inc.