Bell Industries, Inc.

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Bell Industries, Inc.

1960 East Grand Avenue, Suite 560
El Segundo, California 90245
U.S.A.
Telephone: (310) 563-2355
Fax: (310) 648-7280
Web site: http://www.bellind.com

Public Company
Incorporated: 1952 as Bell Radio Supply
Employees: 670
Sales: $183.62 million (2001)
Stock Exchanges: American Pacific
Ticker Symbol: BI
NAIC: 421690 Other Electronic Parts and Equipment Wholesalers; 334111 Electronic Computer Manufacturing; 421720 Plumbing and Heating Equipment and Supplies (Hydronics) Wholesalers; 421730 Warm Air Heating and Air-Conditioning Equipment and Supplies Wholesalers

Bell Industries, Inc. competes in three business sectors: computer systems integration, distribution of aftermarket products for recreational vehicles, and specialty electronics manufacturing. Bell’s systems integration business, operating as Bell Tech.logix, provides integrated technology solutions to more than 5,000 customers. The company’s recreational products group distributes replacement parts and accessories for recreational vehicles, mobile homes, snowmobiles, motorcycles, powerboats, and other leisure-time vehicles, serving more than 4,800 dealers and retail stores in the upper Midwest. Bell’s electronics manufacturing business, operating as the J.W. Miller Division, produces and distributes more than 5,000 products used in circuitry found in computer, medical, and telecommunications equipment.

Retail Origins

Bell began as Bell Radio Supply, the name of a small retail store in Los Angeles that opened in 1952 to sell component parts to the radio trade and to consumers. Bell did not remain a retailer for long. Within four years, the company was shedding off the last vestiges of its origins as a retail concern and shaping itself into a distributor of electronic components to the industrial market. As a distributor, Bell would earn its place within the national landscape of influential companies, eventually evolving into a nearly $1 billion company. Distribution, however, ultimately proved to be a business ill-suited for the company’s long-term survival, forcing management to withdraw from the industry segment that supported its prolific growth and to fashion Bell into a different entity.

Before market conditions dictated Bell’s exit from the distribution business, the company thrived as a go-between. By the late 1950s, Bell’s annual sales eclipsed the $1 million mark, fueled largely by the growth of the southern California market. Ambition within the company grew along with revenue, prompting management to sell shares in the company’s stock as a means to obtain capital that could be used to take advantage of the favorable business conditions. Bell’s IPO occurred in 1959, when the company was traded as an over-the-counter stock. In 1962, the growing stature of the Los Angeles firm was reflected in a move of its stock to the more prestigious American Stock Exchange.

Shortly after Bell’s stock began trading on the American Stock Exchange, a general corporate trend, sweeping across all industries, became a strategic model Bell management followed. During the mid- to late 1960s, the era of diversification through acquisition began, creating holding companies whose diversity of businesses mitigated the cyclical risks of one particular business or industry, insulating financial performance from capricious fluctuations—a safeguard attractive to company executives and investors alike. Increasingly during this period, companies shaped themselves into conglomerates, trading their narrow business scope for a broad presence in variegated businesses and markets. As the pattern of diversification through acquisition took root during the latter half of the 1960s, Bell’s management followed suit, transforming its electronics distribution business into a multifaceted enterprise.

The Development of a Mini-Conglomerate

During the 1960s and 1970s, Bell’s acquisitive activity was fast-paced. The company acquired approximately 30 companies during this period, adding to its strength in its core electronics distribution business and expanding its reach into markets related to graphic arts, building products, motor vehicle parts, and recreational products. The company acquired manufacturing operations in industries such as marine, aerospace, electronic components, consumer goods, and computer products. From its sole business of electronics distribution, Bell leapt far afield, enabling it to describe itself variously as a hydraulic aircraft parts manufacturer, a bar stool company, a capacitor manufacturer, a manufacturer of illuminated aerospace displays, and a builder of mini-bikes.

Bell’s acquisition and diversification campaign ignited revenue growth, increasing sales more than fivefold in less than a decade. In 1968, the company generated $20 million in sales. In 1977, Bell surged past the $100 million mark, a milestone celebrated by the transfer of its stock listing to the New York Stock Exchange. By the end of this period, Bell had become a “mini-conglomerate,” boasting a broad business presence in a number of markets that offset and complemented its primary role as an electronics distributor. The transformation was dramatic, taking the company into a diversified collection of manufacturing and distribution businesses. But Bell’s decentralized, multifaceted corporate structure would not last. External forces again dictated a change in Bell’s corporate strategy, as companies and industries rethought the merits of aggressive diversification and decentralized corporate structures.

During the 1980s, Bell focused on developing a more centralized corporate structure. Company management selected Bell’s businesses in electronics, computers, and graphics as the core to build upon, giving way to a period of divestiture. Bell sold businesses in manufacturing and distribution that were deemed to be non-core assets and used the proceeds to strengthen its presence in its three main business lines. Acquisitions completed during the decade were absorbed into the company’s new, more centralized structure, extending its geographic and operational scope.

The 1990s: A Decade of Change and Retreat

Bell recorded impressive growth during the first half of the 1990s, generating the bulk of its revenue from its electronics distribution business—a company mainstay since the late 1950s. During the decade, the distribution industry underwent significant changes, as an era of mega-mergers reshaped the industry and the criteria for future success. Many of the major participants in the industry were seeking to acquire large rival firms in a bid to secure massive gains in market share, creating a scenario in which only the largest distribution firms would survive. Smaller distributors, those companies unable to develop an entrenched, nationwide presence, would likely be crushed, unable to compete against the industry behemoths. For Bell, the 1990s proved to be a crucible: the company either had to increase its stature exponentially or risk losing its business to those who succeeded in the merger frenzy that described the electronics distribution industry in the 1990s.

During the mid-1990s, the electronics distribution industry comprised three tiers of competitors led by industry giants Arrow Electronics Inc. and Avnet, Inc. Arrow and Avnet were by far the biggest electronics distribution firms in the country, generating between $3 billion and $4 billion more in annual sales than their closest rivals, those firms occupying the second tier of the industry. Within this segment, electronics distribution firms were recording between $500 million and $1 billion in annual sales, including companies such as Pioneer-Standard Electronics, Wyle Electronics, and UK-based Farnell. Bell, as the mid-1990s neared, was flirting with promotion into the industry’s second-tier, its revenue volume drawing close to the $500 million mark. The company was more rightly grouped into the third tier of the industry, which contained companies whose annual sales totals ranged between $100 million and $500 million.

In a bid to exponentially increase its stature, Bell made an attempt to acquire one of its third-tier brethren. In 1995, the company submitted an offer to buy Sterling Electronics Corp., proposing a $142 million-in-stock deal for the electronics distribution company. In September 1995, Sterling dismissed the offer, declaring the acquisition bid to be “unsolicited,” according to an October 2, 1995 article in Electronic News. Bell decided against a hostile takeover, but the company had yet to abandon its efforts to acquire a competitor.

1996 Acquisition of Milgray and Its Effects

Bell executives, itching to delve into the acquisition game, did not have to wait long after the scuttled Sterling Electronics deal. In November 1996, the company announced it had signed a merger agreement with Farmingdale, New York-based Milgray Electronics Inc. Discussions about the acquisition had been underway well before the Sterling Electronics deal fell through, beginning in 1994, according to reports in trade periodicals. The $100 million deal was completed in early 1997, coupling Bell with another third-tier electronics distribution company. Milgray, roughly one-half of Bell’s size in terms of revenue, gave Bell entry into New York, Kansas City, and Canadian markets, where Milgray had an established presence. Once the deal was concluded, Bell emerged as a nearly $900 million company earning $18 million in annual profits, its position secure in the second tier of the electronics distribution industry, from which the company derived nearly 80 percent of its revenue.

Company Perspectives:

Bell’s primary business is Bell Tech.logix, which is a multi-regional provider of integrated technology solutions for large and medium-sized organizations. The group’s services include network design and engineering, software licensing support, microcomputer systems analysis, help desk support, product configuration and deployment, and asset management. Bell also operates a recreational products business which distributes after-market parts and accessories for the recreational vehicle, motorcycle, snowmobile, and marine markets. In addition, Bell’s operations include manufacturing of specialized products for the computer and electronics industry.

The consummation of the Milgray deal required Bell to restructure itself. As part of the 1997 restructuring program, Gordon Graham was named Bell’s president, replacing Bruce Jaffe, who resigned when the merger agreement was announced in November 1996. Graham assumed the responsibility of overseeing all of Bell’s electronics and non-electronics distribution businesses, which included the company’s graphic arts and automotive aftermarket products. Initially, the plan was to consolidate some of the functions of the two companies, but, aside from eliminating some administrative and corporate redundancies, the companies were to be operated as two separate units. Quite quickly, however, the corporate marriage encountered profound difficulties. Bell’s bid to join the industry elite was forsaken for a thoroughly revamped version of itself—a company divorced from the distribution business for the first time in 40 years.

In the years leading up to the Milgray acquisition, Bell experienced dramatic growth. In 1996, the company celebrated its fifth consecutive year of increased sales and earnings. The company’s consistent financial growth stopped shortly after the Milgray acquisition closed in January 1997, when problems stemming from the combination of the two entities first surfaced. Suppliers of electronics products—Bell’s customers—reacted negatively to the union of Bell and Milgray, voicing concern about sharing shelf space with competitors included within the new distribution network of Bell/Milgray. Within a year, Bell lost the business of important vendors such as Analog Devices, Atmel, B1 Technologies, Fujitsu, Hitachi, and Kernet. The company’s financial health suffered as a result, leading to four consecutive quarters of revenue and net income decline following the Milgray acquisition. In an October 5, 1998 interview with Electronic Buyers’ News, an analyst with Credit Suisse First Boston offered his assessment: “Milgray squeezed them. It seems like it was a big burden on the company. They did a poor job at integrating the company and never seemed to bounce back after suppliers pulled their business. Also, they didn’t have the foresight to realize the entire industry was going into a down cycle when they pursued this deal.”

In the wake of the Milgray acquisition, Bell management chose to thoroughly alter the company’s business scope. In September 1998, Bell sold its graphics business, which distributed graphics and electronic imaging products to advertising and printing industries located in the upper Midwest and western United States. The graphics business, representing $100 million of Bell’s annual revenue volume, was sold to Prime Source Corporation for roughly $40 million, enabling the company to realize approximately $5 million in cost savings. As the graphics divestiture was being completed, Bell made the stunning announcement it also was selling its electronics distribution group, a contributor of 77 percent of the company’s $890 million in sales at the time. In January 1999, the divestiture was completed. Arrow Electronics, the industry leader, acquired Bell’s electronics distribution business for $185 million. Bruce Jaffe, who had resigned as Bell’s president shortly before the Milgray acquisition, offered a harsh assessment of Bell’s decision to retreat from the distribution business. “I was surprised to hear about the deal,” he remarked in an October 5, 1998 interview with Electronic Buyers’ News. “I felt the company should have continued to be an independent entity. It looks like Bell management has thrown in the towel and said, ‘You take the problems we can’t manage.’”

At the time of the divestiture, the company began formulating a major restructuring plan. At the heart of the reorganization was changing the company’s focus from distribution to reselling, with the proceeds from the two divestitures used to pay the company’s debt obligations. The company that emerged from sweeping strategic realignment represented the “new” Bell, the Bell of the 21st century.

Bell prepared for the celebration of its 50th anniversary as a roughly $200 million concern, a fraction of the company’s size during the 1990s. Its greatest contributor to sales was a company called Bell Tech.logix, formed in 1998 as Bell’s Systems Integration Group. A provider of integrated technology (IT) solutions to customers in the Midwest and Atlantic regions, Bell Tech.logix generated $130 million in sales in 2001, down substantially from the $189 million the division produced in 2000. The two smaller divisions constituting the company were the Recreational Products Group and Bell’s specialty electronics manufacturing business, J.W. Miller. The Recreational Products Group distributed replacement parts and accessories for recreational vehicles, motorcycles, snowmobiles, and other leisure-time vehicles, accounting for $46 million in sales in 2001. J.W. Miller, a manufacturer of products found in all types of circuitry housed in computer, medical, and telecommunications equipment, generated approximately $7 million in sales in 2001. Owing largely to the decline in sales posted by Bell Tech.logix in 2001, Bell’s total sales dropped from $252 million in 2000 to $189 million in 2001, leaving much for the revamped Bell to prove as it prepared for its second half-century of business.

Principal Subsidiaries

Bell Industries, Inc.; J.W. Miller Company; Bell Tech.logix, Inc.; Milgray Ltd.

Principal Divisions

Bell Tech.logix; Recreational Products Group; J.W. Miller Division.

Principal Competitors

Computer Sciences Corporation; Electronic Data Systems Corporation; International Business Machines Corporation.

Key Dates:

1952:: Bell Radio Supply opens in Los Angeles.
1959:: Initial public offering of stock is completed.
1978:: Bell’s System Integration Group, the precursor to Bell Tech.logix, is formed.
1996:: Milgray Electronics is acquired.
1998:: Bell’s graphics business is divested as part of the company’s restructuring plan.
1999:: Bell’s electronics distribution business is sold to Arrow Electronics.
2000:: The company’s restructuring is complete, and Bell operates principally as an integrated technology solutions concern.