First Lawrence

Lester Electronics, Inc.

In 1978, Shang-wa Electronics, a small Korean manufacturer of capacitors, entered into an exclusive United States distribution contract with Bernard Lester, who then officially founded Lester Electronics, Inc. (LEI). LEI grew rapidly as Bernard added additional components to its product line, and made inroads with two large domestic manufacturers that use capacitors in both consumer and industrial products.

As a consumer and industrial electronics parts master distributor, Lester markets its products to small- and medium-sized original equipment manufacturers (OEMs), repair facilities and small local distributors throughout the Americas and Europe. To date, however, Lester has never marketed domestic-made parts outside of the United States. Operating in this way, the company’s revenues approximate $500 million a year.

In 1984, Bernard took his company public, and it is now traded on the NASDAQ market and rated Baa by a nationally recognized rating agency.

Shang-wa Electronics

Shang-wa CEO John Lin began manufacturing capacitors in 1969, building a small, well-respected business in Korea. In 1978, John entered into an Exclusive Supply Agreement with Bernard Lester. Under the contract, Shang-wa granted Lester the exclusive right to sell Shang-wa capacitors in the United States for 65 years, as long as Lester maintained a minimum annual purchase of $1 million wholesale; as a result, Shang-wa is Lester’s primary supplier of capacitors for the U.S. market. In exchange, Shang-wa cannot knowingly sell its capacitors to anyone intending to market to U.S. buyers.

For the past 35 years, the agreement -- which must be renewed annually -- has served both companies very well, and John and Bernard now consider themselves friends as well as business partners. In fact, five years ago, Bernard invited John to sit on the LEI Board of Directors. During his past two visits to the United States for Lester’s quarterly Board meetings, John has informally suggested that Shang-wa is open to growth opportunities that could position the company to meet growing demand.

Transnational Electronics Corporation (TEC)

As a large manufacturer and distributor of electronics components, Transnational Electronics is on the rise. Through recent mergers and acquisitions, the company has finally developed enough resources to expand globally. TEC has recognized the growing domestic demand for the specialty capacitors that Shang-wa manufactures. In fact, last month at an Asian trade show, TEC CEO David Antone casually mentioned to John Lin that TEC might be interested in acquiring Shang-wa.

If this happened, the long standing Lester/Shang-wa exclusive distributorship agreement would most likely not be renewed at year end, creating a 43 percent reduction in Lester revenues over the next five years.

Avral Electronics, S.A.

An electronic equipment and component parts manufacturer headquartered in Paris, Avral also has manufacturing facilities in Ireland, France and three Asian nations. Through shares traded on the Paris Bourse, and both the Frankfurt and New York Stock Exchanges, Avral enjoys a wide shareholder base and, in just the past five years, has increased annual revenues from $300 to $900 million. Good financial health has given Avral execs reason to explore an electronics distributorship business in the United States.

The Players:

Bernard Lester, CEO and founder of Lester Electronics: After graduating college in the mid-1960s, Bernard immediately entered the electronics business as an apprentice customer service/salesperson at his family’s capacitor manufacturing plant in New England. Though Bernard’s father had been in business in New England since the 1920s, by the 1950s, he was finding it hard to stay competitive in the region, and relocated the plant to South Carolina, where labor costs were significantly lower. By the �70s, with labor rates escalating even in South Carolina and overseas manufacturers encroaching on his business, Bernard Sr. -- now in his late �60s -- sold his remaining business to a Japanese capacitor manufacturer and retired.

Though jobless, Bernard Jr. realized that he still had extensive contacts and experience in the specialized sector of the electronic component parts industry. Using negotiating skills honed over the past 15 years, Bernard entered into business with the small Shang-wa Electronics, becoming the company’s exclusive distributor of capacitors in the United States. Now, at age 64, Bernard is CEO of the public Lester Electronics, Inc. which earns $500 million annually.

Anne Lorale, CFO, Lester Electronics: Upon earning a business degree from Ohio State University, Anne took a job at medium-sized CPA firm, which served as LEI’s independent auditor. She worked with Lester as a junior accountant and was promoted to account manager when she passed her CPA exam. Anne continued to work with the company as it grew, ultimately becoming the senior manager responsible for the annual audit and quarterly reviews. In 1989, Bernard Lester realized he needed a full-time CPA, and offered Anne the job as company Controller. A loyal employee, Anne was promoted to Chief Financial Officer in 1999.

John Lin, founder and CEO of Shang-wa Electronics: John has no formal education beyond grade school, and has been manufacturing capacitors -- the small components used in myriad consumer and industrial appliances -- nearly all of his working life. What started as a janitorial job in a capacitor factory at age 14 led to an assembly line position and ultimately clerk, where John processed paperwork to export the company’s products to the U.S. By age 32, John was married with two sons and itching to be his own boss. With backing from his father-in-law, he quit his job to found Shang-wa. In the 36 years since, John has proven himself a skilled businessman and negotiator.

Now, at age 68, John looks forward to spending less time on business and more time with his grandchildren while they are still young. The problem? John has never groomed a successor and without one, the business cannot afford for him to slow down. With one son a doctor and the other a commercial architect, John has begun to explore other options that might afford him retirement.

Recently, John has informally suggested to Bernard that they partner to establish a new capacitor manufacturing facility in a neighboring

...