Software distributor Kenfil debuts in public market.

First offering of shares to public lands $17.5 million

Van Nuys-based Kenfil Inc., a major computer software distributor, went public with a $17.5 million stock offering late last month, entering a highly competitive field even as software prices continue falling.

The company issued 2.5 million shares priced at $7 a share on Jan. 28 and could sell an additional 375,000 shares in the next two weeks, according to John Jacobs, a managing director with underwriter Piper Jaffrey Inc. in Minneapolis.

In the first indication Wall Street approves of Kenfil's timing, three days following the initial public offering, shares were holding their value and trading as high as $8 per share. Book value after the offering is $1.89 per share.

The company received net proceeds of $16.2 million and will get up to $2.4 million more if the additional shares are sold. Offering proceeds will be used to finance its working capital needs and pay down outstanding debt.

President and Chief Executive Irwin A. Bransky retains a 30 percent stake, down from 50 percent prior to the offering. Alexander Papakyriakou, executive vice president and chief financial officer, saw his stake drop to 5 percent from 8 percent.

Bransky is a South African native who founded the company a decade ago. Both men attended college and graduate school in South Africa and were A.C. Nielsen Co. executives there in the late 1970s.

Securities analysts from companies in the underwriting syndicate could not comment on the financing because of the 30-day quiet period imposed by the Securities and Exchange Commission.

An estimated $4 million of the IPO proceeds will pay off a portion of an unsecured $10 million note issued in 1990 to Chrysler Capital Corp. Another $940,000 will pay down outstanding bank debt.

With 112 full-time employees, Kenfil had $167.5 million in sales for the fiscal year ended June 30, 1992, up from $133.2 million the previous year.

For the three months ended Sept. 30, Kenfil's net sales increased by 13.7 percent to $39.9 million from a year earlier. Gross profit increased to $5.5 million from $4.4 million.

Superficially, Kenfil seems well-positioned. Many publishing giants already sell through its distribution channels, including Microsoft Corp. and WordPerfect Corp. And Kenfil resells through a variety of retailers, ranging from superstores like CompUSA and specialty shops like Walden Software, to mass merchants like Price Club and mail order houses.

Stiffer competition seems to favor Kenfil's biggest competitors -- El Segundo-based Merisel Inc. and Santa Ana-based Ingram Micro Inc. -- the nation's largest PC-products distributors. Merisel is expected to do about $600 million in 1992 software sales and Ingram $1 billion, vs. Kenfil's $167 million. Merisel's resellers number 50,000 and Ingram's 60,000 vs. Kenfil's 1,100.

"They (Kenfil managers) obviously have cut out a piece of the market for themselves, but it will be hard for them to gain market share," said Merisel Chief Financial Officer James Brill.

In a variation on that theme, Ingram spokesman Wayne Stewart said, "The only way to make money in distribution (today) is through increased volume, and there are economies of scale here that weigh heavily in our favor."

Kenfil's net profit margin has averaged only 0.66 percent since September 1991, when it became profitable. The company was formed as a partnership in 1983 and incorporated in 1984.

Merisel did 0.86 percent in the period. Ingram does not make profit figures public.

On the plus side for Kenfil, the entire software business is fastest growing segment of the PC industry. Software publishers' revenue leapt 30 percent on average from 1991-1992, compared with 7 percent for PC hardware and 4 percent for workstations, according to research firm Dataquest Inc.

And distribution is not an either-or proposition. For example, Torrance-based software producer Davidson & Associates already sold through Merisel and Ingram when last month it began selling 39 titles of educational software through Kenfil.

Kenfil's Nasdaq symbol is KNFL.