ScanSource, Inc.   -Case Study 

      ScanSource, Inc. - Memphis Warehouse

In January 1999, Dede Malmo was contacted by representatives of ScanSource, Inc., a Greenville, South Carolina specialty technologies company. 

A distributor of automatic identification (auto ID) and point of sale (bar code) products, they needed help with the relocation of their growing warehouse operation in Memphis. ScanSource has a large presence in Memphis and its business requires that its warehouse be next to Federal Express’ International Hub at Memphis International Airport. 

Their new warehouse also had to meet strict restrictions on ceiling heights, dock doors, lighting, size etc. 

To further increase the difficulty of the assignment, the initial contact was made at noon on a Friday and the company needed all market information by lunch on Monday. Malmo immediately went to work assembling all the required information and was able to FedEx a complete package in time.   

After touring all the available properties the list was narrowed to three available buildings. Proposals were scrutinized and lease analyses were presented to ScanSource with recommendations on which buildings offered the most favorable economic terms. All three buildings were brand new with rental rates of 25% less than  ScanSource’s existing 20-year-old facility. 

Malmo outlined the tax incentives offered by city and county governments that were available to firms such as ScanSource. Malmo assisted with ScanSource’s Payment in Lieu of Taxes (PILOT) application and ScanSource received a tax freeze that saved the firm $2.5 million in taxes over the life of the lease. Also, ScanSource received a below market rental rate for a brand new facility in which they occupied 64% of the building and received an expansion option on the remaining 36%. 

Malmo also negotiated a purchase option into the original lease agreement that allowed ScanSource an opportunity to purchase the building if the owner ever decided to sell.  

One month after signing the original lease agreement and during the process of moving in to the new facility, Malmo and ScanSource were approached by representatives of the building’s owner inquiring about ScanSource’s interest in purchasing the building. The building owner had a need to sell the facility before the end of the year and if ScanSource had an interest they needed to act fast. 

ScanSource had a slight interest initially and asked Malmo to begin discussions with the building owner about the price and terms of a possible sale. After collecting all the sale information, Malmo prepared a detailed Lease vs. Own analysis that analyzed present and future values and costs of capital at a purchase price that we believed was fair to ScanSource.

Malmo received authorization from ScanSource to prepare an offer under the terms and conditions that Malmo had suggested and the offer was accepted only a few days later. Two weeks later ScanSource closed on the acquisition of a recently constructed 233,000 state-of-the-art warehouse facility only minutes from Federal Express’ International Hub. The final sale price was 15% less than several second-generation buildings that had traded within the previous 12 months.  

Malmo’s experience and knowledge of the Memphis market, lease negotiations, financial analysis and government incentives allowed ScanSource to not only secure a tax freeze, but to also negotiate a below market lease agreement and subsequently allowed them to acquire a brand new facility for 15% less than the market price.