Is Synnex finally about to make a splash in Europe through Westcon deal?

Doug Woodburn
clock
Is Synnex finally about to make a splash in Europe through Westcon deal?

US distribution giant that's always kept Europe at arm's length is now in the box seat to acquire Westcon's international business following its $800m deal for Americans arm, says Doug Woodburn

Despite being a $10bn-plus firm with an IT distribution business larger than Arrow's, Synnex is a virtual enigma to the UK and European channel - until now.

The California-based outfit's deal with Datatec-owned distributor Westcon-Comstor (or just 'Westcon', for short), announced this morning, may well turn out to be its opening gambit in growing a business on this side of the pond.

As a result of the deal, the complicated structure of which Datatec CEO's has acknowledged is unorthodox, Synnex is taking a 10 per cent stake in Westcon's international operations only, at least initially.

However, in a twist that brings to mind CDW's ‘slow motion' trade sale of Kelway a couple of years ago, Synnex has reserved the right to double its stake in Westcon International to 20 per cent. It also has first refusal on making an offer to acquire it in its entirety should Datatec ever look to sell the remainder of the business.

"Synnex are an excellent distributor in the States. If they'd bought the [international] business, I would have said, yes, it's a threat to £2.5bn Westcoast -  but they haven't, and it would probably be some way off," - Alex Tatham, Westcoast

Westcon International includes Westcon's EMEA and APAC operations, which together generated 52 per cent of the distributor's revenues last year.

In a reflection of Westcon's recent woes in EMEA, Synnex is stumping up just $30m for its 10 per cent stake in the international business. This compares to the $800m it is paying to buy Westcon's North and Latin American arm outright, despite it actually being slightly smaller.

On a conference call with investors, Datatec CEO Jens Montanana admitted that his first choice was to sell the business as a single entity, confiding that the South Africa-based IT group could not get the value it sought for the distributor's EMEA and APAC business.

"Ideally we would have approached this transaction on a much more holistic basis. But we concluded that the logic behind the industrial tie-up was very sound, and [Synnex] were very keen to ink something now. Clearly, we think we can get better value [out of the EMEA and APAC business] later," he said.

Despite this, Synnex is clearly in the box seat for any deal involving the EMEA and APAC business in the future.

In its fiscal 2016, Synnex hit revenues of $14.06bn, with $12.49bn of that coming from distribution activities, and $1.59bn coming from its BPO business. The Westcon deal will pack on another $2bn revenues.

To put that in context, that's well over the $8.88bn revenues Arrow generated from its enterprise IT distribution business last year. Tech Data turned over $26.38bn last year, and Ingram $43.03bn in 2015.

Although Synnex may be taking a cautious stance on its global expansion, the more pertinent question is why a distributor of this scale hasn't landed in the UK and Europe sooner, especially given the increasingly global nature of the channel.

The identity of Westcon's new owner, and the structure of the deal, has, however, been greeted with surprise by some of the distributor's competitors. Arrow was thought at one stage to be the hot favourite, with Swiss-German distributor ALSO also linked with the negotations at one stage.

Barrie Desmond, COO at Exclusive Group, said the deal is a "bit confusing", and saw it as a "good opportunity to take advantage, particularly on global projects".

alt=''

"It's a good deal for Datatec - I think the valuation probably says more about Synnex than Westcon," he said. "Synnex is trying to establish a more credible business in the US with access to some interesting franchises like Cisco and some of their unified communications and cyber-security franchises.

"For me it's a bit confusing. It's a bit like ‘look, we like [the Amercias arm] and we are not so sure about the rest of the business, so we will see how it goes'. And [Synnex] is a different type of distribution owner. They certainly put more emphasis on operational leanness as opposed to value. So if I'm honest, I see as a fantastic opportunity for us to fill the gap in the market that this confusion and dislocation will bring."

Ian Kilpatrick, Ian Kilpatrick, executive vice president of cyber security for Nuvias Group, also confessed he was surprised by the nature of the deal.

"It's an interesting deal, and it's going to raise them some interesting challenges in managing the separation, but good luck to them," he said.

"Ten per cent in management terms is worth nothing - that's barely an investment. If it's a slow-motion investment or acquisition, then it would make more sense than what is immediately apparent."

Hayley Roberts, managing director of Distology, said: "Any investment is sensible in the marketplace, especially if the business strategy is not working."

Alex Tatham, managing director of Westcoast (pictured below), said he'd heard that Synnex was the hot favourite at the start of the sale process, and was interested partly because Westcon would catapult it into Europe.

"They were the first ones that were going to buy it as it would put them on a global basis," he said. "Then it was Arrow, and then ALSO. It's now come full circle, but they've only bought the [Amercias] business - a business they know and love.

alt=''

"Synnex are an excellent distributor in the States. They are an excellent Microsoft distributor. They are a superb outfit and are growing like crazy and I think they are a real threat to Ingram and Tech Data, and will now be an even bigger theat to them."

"I can understand why they took an option in the European business, but 10 per cent is nothing. You have seen [Westcon's] European business and it's in a shaky state, so that's probably why they've only bought 10 per cent. If they'd bought the [international] business, I would have said, yes, it's a threat to £2.5bn Westcoast -  but they haven't, and it would probably be some way off."

 

More on Reseller

Softcat expects profits to come 'slightly' ahead of expectations in Q3 trading update

Softcat expects profits to come 'slightly' ahead of expectations in Q3 trading update

Reseller says growth was ‘broad-based’ across all technology areas in three months to 30 April 2022

Josh Budd
clock 25 May 2022 • 1 min read
Westcon and Logicalis owner sees double-digit fortunes in full-year results

Westcon and Logicalis owner sees double-digit fortunes in full-year results

Both partners performed well across Europe despite ongoing supply constraints, which Datatec’s CEO expects will influence the group’s FY23 performance

Kelsey Rees
clock 24 May 2022 • 3 min read
Bytes boasts double-digit sales growth in preliminary full-year results

Bytes boasts double-digit sales growth in preliminary full-year results

CEO Neil Murphy praises ‘another record set of results’ for Bytes with increases across software, hardware and services

Josh Budd
clock 24 May 2022 • 2 min read

Highlights

Staff & Salaries 2022

Staff & Salaries 2022

A snapshot of pay and headcount trends in the UK channel

Doug Woodburn
clock 09 March 2022 • 1 min read
Midwich CEO on Nimans acquisition, 2021 results and return to pre-pandemic levels

Midwich CEO on Nimans acquisition, 2021 results and return to pre-pandemic levels

Stephen Fenby talks to CRN after Midwich’s 2021 results in which profitability exceeded pre-pandemic levels

Josh Budd
clock 08 March 2022 • 3 min read
4 more vendors suspend sales in Russia following Ukraine invasion

4 more vendors suspend sales in Russia following Ukraine invasion

IBM and Microsoft are among a number of vendors which have also announced that they will halt sales in Russia following the invasion of Ukraine.

Dan Bennett
clock 08 March 2022 • 3 min read