18.06.18

Business: After acquisition

distribution

Hurrairah bin Sohail speaks with Tico and Principle One, after the former’s acquisition of the latter, to ascertain the reasoning behind the deal as well as the advantages both parties sought to gain from the move.

In 2017, Tico announced that it had acquired a majority stake in Principle One. While the deal may not have the same stature as Samsung’s acquisition of Harman or the recent acquisition of Polycom by Plantronics it nonetheless underlines a significant trend. The professional AV industry is changing and forward- thinking players in the market are looking to prepare for future success.

Joey Yeung, COO at Principle One, says: “Principle One is a technology company and was founded in 2003. From there we have grown to a company with 110 employees and offices in Hong Kong, Tokyo and Singapore. Our focus has always been on the integration of IT and AV systems. We work primarily in the financial, legal and retail sectors and sometimes also in education. Principle One delivers turnkey projects from design, product selection, installation, testing, commissioning to support.

“In the market, there are not many small to medium business companies that focus on AV and IT integration. It is becoming a bit more common to see such players today, but when we started this was not the trend. Due to our head start, we have subject matter experts across AV and IT disciplines which gives us an edge.”

Ben Ho, vice president of Tico, comments: “Tico was established in 1994. It started from humble origins, with two young men who graduated [from] university, loved audio and moved into the professional audio market. From there it has grown into the company it is today. Currently, we are headquartered in Beijing but have 12 other offices covering China from east to west and from north to south and 550 employees. We have a number of different entities under the umbrella of the Tico family which are engaged in different business activities across China.

“In the AV industry, most people would recognise Tico as a product distributor for big AV brands. But in actuality, the business interests of Tico are larger than that. We are not just a logistics and distribution company. We want to transition into being more of a solution provider with the help of our integration partners.”

The acquisition was spurred on by Tico’s evaluation of the professional AV industry. Ho says: “Tico’s focus has always been on the professional AV market. Over the last few years, this AV market has been merging with the IT market. This was one of the reasons we first began looking at Principle One. With AV and IT merging together, we knew that we would have to focus not on the slogan of ‘converged AV and IT’ but on the practicalities of what it would mean for our business and for our day-to-day operations in the market.”

Principle One also identified a shift in the market. Yeung says: “Over the last three to five years, we have observed that clients are looking for one company that can cover both the AV and IT components of a project. It should be no surprise to anyone that project management companies and clients like to work with as few contractors as possible. This makes it easy for them to manage and also introduces points of accountability. Clients are extremely happy to see a company with AV skills as well as good knowledge about network solutions which can get the job done.”

The real drive behind the acquisition was both parties’ drive to expand. Ho says: “A few years ago, the Chinese government enacted policies to encourage Chinese entrepreneurs to expand to the overseas market. Tico followed this direction and we established presence in Hong Kong and Macau in the shape of CAH Distribution and Audio System Consultants. Now, Principle One brings us to Singapore and Tokyo and hopefully in the future we will enter more Asian markets.”

Yeung corroborates: “We’ve known Tico for a while and have partnered and worked with them in Asia. From Principle One’s side, we discussed how we would like to expand in Asia and this is aligned with Tico’s drive to implement a similar strategy. Tico was looking to move out of China and do more business across Asia.”

Both parties are also making efforts to ensure that the acquisition bears fruit. Ho says: “Principle One has been operating completely independently since the acquisition and retains its separate decision making capabilities. However, we have been working closely so that both parties can leverage skills on both sides. Day by day, we are getting closer and are cooperating and gaining more coherence.”

Yeung says: “All the senior management remained on board after the acquisition and that gives a clear message regarding Principle One’s stance on the acquisition. There have been no changes in staff and no changes in how day-to- day business is conducted. We remain independent and with our company structure intact.

“Tico provides us with a platform. At Principle One, the discussion has been about how we will position Principle One with respect to the other business entities under Tico and provide new solutions. The changes are positive and business development has been positive. We still want to develop and deploy solutions.”

The independence Principle One has, also maintains the integrity of both companies after the merger. Ho says: “Tico is a publically listed company and we have different entities to look after different facets of our business. Before the acquisition of Principle One, we kept our integration arm and our distribution division separate. This still remains the case. Our integration teams and Principle One have their own design teams and they decide what products are a good match for their projects. How to deliver better solutions to our clients is the focus of our integration business.”

Yeung comments: “Principle One has always positioned itself as delivering professional service. Over the years, we have never distributed a product because we want to be neutral and independent. Moving forward, we have no intention to position ourselves as a distributor. The partnership between Principle One and Tico is not to sell more hardware. The partnership is to see how we can both better serve our clients.”

With the acquisition done in the second half of last year, it is still early to evaluate its success. Yeung says: “Externally, we have been working together with Tico to meet our partners and clients to let them know we are one family and also to gauge their expectations and requirements through the lens of our new capabilities. Internally, we are working on improving processes and workflows which is being done in collaboration between Principle One and Tico.”