What qualities these entrepreneurs have in common?


38 years old, entered computer wholesaling only in 1985 and has already expanded his revenues 33 times, all while avoiding the fattest market of all, the U.S. This country has 41% of the PCs on the planet. Osorio's Miami-based company, CHS Electronics, wants no part of it. He peddles PCs, software, networking equipment and peripherals like printers and modems to resellers in Europe and Latin America.

In the U.S., computer retailing is shifting to direct sellers like Dell and to large national chains like CompUSA, neither of which have a need for a wholesaler to stand between them and a manufacturer. But smaller markets still have fractured distribution systems that offer opportunities to smart wholesalers who understand the quite different local markets. Osorio has the cosmopolitan flair to stitch all these pieces together. He was born in Venezuela, studied law and business and speaks five languages. He learned the wholesale business young. At the age of 16 he was wholesaling sporting goods for a firm he cofounded. In 1985 he got out of sporting goods and switched to a product with a little more action: computers. He started by assembling PCs for Venezuelan and then German markets.

Merisel, the publicly held, number two computer equipment distributor, never got the knack of running a multinational wholesale operation. It could not make its European outfits profitable. So in September 1996 Osorio bought Merisel's European and Latin American operations for a song, 0.8 times revenue. That one acquisition kicked his revenues from $937 million in 1995 to $1.9 billion last year. Merisel's European unit was so mired in losses that no one would touch it. Osorio took it on the condition that he would also get Merisel's profitable Latin American unit. Merisel would probably have made more money selling the pieces separately, but it accepted Osorio's deal, glad to be finally rid of Europe.

In January 1993 Osorio acquired a German distributor of Hewlett-Packard products. It proved a prize catch: HP now makes up 34% of all CHS' sales. CHS paved the way for HP's entry into untapped markets like the Czech Republic and other Eastern European countries. All told, Osorio has since acquired some 20 companies throughout Europe and Latin America, the latest (announced on June 23) a Swiss firm that should add $1 billion in annual revenue.

Osorio characterizes the buyouts as "earnouts" because in most cases he keeps the original owners on as salaried employees, also compensating them on the basis of future earnings. "My army of entrepreneurs," he calls them.

In another business Osorio's pace of acquisitions would border on reckless. In the fast-moving computer industry it is a defensive strategy. Even though it operates in relatively small markets, CHS' combined heft gives it clout with suppliers and economies of scale. Talk about slim margins. CHS will probably net a mere $28 million, or $1.70 a share, this year on revenues of $4 billion. But this isn't bad for a distributor that can turn over its inventory nine times a year. Though its return on sales may look skinny, its return on capital is most impressive.

How does this young company finance its acquisition binge? Osorio used to get capital from venture capitalists in Switzerland and Germany. A year ago he raised $56 million in a secondary stock offering, selling 40% of the company. The stock has climbed from its offering price of 12 to 31--much to the credit of its underwriter, Raymond James & Associates. With its stock at a healthy 20 times trailing earnings, CHS now has the wherewithal to expand. Most of its deals these days are paid for with a mix of cash and stock.

CHS is now the fourth-largest in the business, after Ingram Micro, Tech Data and Germany's Computer 2000. Don't be surprised, however, if it continues to move up the list. The recent Swiss acquisition includes an Asian subsidiary; Osorio says he will further expand into Asia this year. Now there's a market he can really sink his teeth into.

Shailaja Neelakantan, Picking his targets. Webpage: http://www.shailaja.net/picking%20his%20targets.htm 


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