Alley’s new aim: Consolidate electronics industry: Ex-banker shooting for $170M in revenue by 2012

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Since purchasing Escient Solutions in early 2003 and changing its name to Electronic Evolutions Inc., Mike Alley has increased revenue 35 percent, to $6.5 million. That’ll be small potatoes if Alley’s dreams for the company pan out.

Alley, former Fifth Third Bank of Central Indiana president and CEO, wants to be a consolidator in the fragmented electronics and automation design and installation industry. Toward that end, he partnered in late June with electronics industry veteran Daniel Knotts and formed E2 Holdings Inc., which Alley said will acquire up to 14 audiovisual, information technology, communications and multimedia companies. Alley projects E2 Holdings will have $170 million in revenue within five years.

Alley declined to divulge details, but he said E2’s first acquisition is almost finalized, with at least two more in the hopper.

With systems designed by Alley’s company, a single remote control manipulates lights, window shades, screens, projectors, DVD players, computers and more. Climate control and other systems can also be connected to the automated network. E2’s acquisition spree would consolidate firms that do the same thing, for both residential and commercial clients.

Terms of Knotts’ buy-in were not disclosed, but industry experts said it was likely a seven-figure investment. Alley said the capital would be key to making E2’s initial acquisitions. Knotts is president and CEO of E2 Holdings, and Alley is executive vice president and chief financial officer. Alley will remain president and CEO of Electronic Evolutions.

“This plan has been in the works for more than 18 months,” Alley said. “We think we have the formula to make this a leading company in the industry.”

Alley’s and Knotts’ formula includes finding growing electronic design and integration companies in strong markets that need more liquidity to grow. Acquisition targets should have annual revenue of $3 million to $12 million, Alley said.

The acquired companies will keep their own names-thus maintaining local market brand value-with the former owners staying on in a management capacity. Those managers will be given a stake in E2 Holdings as an incentive.

“This is an industry driven by relationships,” Alley said. “We haven’t lost sight of that.”

Alley’s strategy of maintaining a strong local presence for his subsidiaries is a smart one, said Mitchell Klein, CEO of Boston-based custom electronics installer Media Systems.

“A lot of companies attempting consolidation have failed,” said Klein, former twoterm president of Custom Electronics Design and Installation Association, an Indianapolis-based trade association.

While maintaining the autonomy of its acquired companies might be smart, Klein is less certain about Electronic Evolutions’ plans to be involved in both commercial and residential sectors. On the residential side, Electronic Evolutions designs and installs home theaters and automatic lighting systems, mostly for high-end homes and condominiums. Alley is hopeful of signing contracts to work with entire condominium complexes.

On the commercial side, Alley’s firm designs and installs audio visual and other automated-control systems for boardrooms, auditoriums, conference centers and health care facilities.

Projects can range from a few thousand dollars to a few million, Alley said, but the average is $50,000.

When Alley bought the company, revenue was 85-percent residential and 15-percent commercial. Now, revenue is 60-percent commercial.

“Ideally, we’d like to keep our revenue 50-50 residential and commercial, but that will depend on the market,” Alley said.

Knotts said only three companies have succeeded in becoming major consolidators, which have annual sales above $165 million. They are Maryland-based SPL Integrated Solutions, Florida-based Audio Visual Innovations and Minnesota-based AVI Systems. In their attempt to join the big three, Alley and Knotts will start by focusing on the Midwest and Southeast.

Knotts, 53, who met Alley, 50, 3-1/2 years ago as a vendor and manufacturers’ representative in the electronics industry, brings an industry insight Alley thinks will be critical in making the right acquisitions. Knotts most recently served as vice president and general manager of Richardson, Texas-based AMX Corp., a national supplier of advanced network control systems.

Knotts said he was attracted to the E2 Holdings deal by Alley’s vision and his banking background. Alley led the Indiana presence of Cincinnati-based Fifth Third from 1989 to 2002.

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