Arrow Electronics has confirmed one of the channel's worst-kept secrets by announcing it is to gobble pan-European security VAD Computerlinks in a €230m (£199m) deal.
As exclusively revealed by CRN, rumours first emerged that Computerlinks was in talks with its US-based rival in June as the five-year anniversary of its takeover by private equity firm Equistone – formerly Barclays Private Equity – loomed. At the time, Arrow declined to comment, while Computerlinks dismissed the story as market chatter.
According to sources, Arrow more recently codenamed its pursuit of Computerlinks "Project Castle", although official confirmation of a definitive agreement between the duo only came this evening in the form of a short statement from Arrow.
Arrow chief executive Michael Long said the acquisition supports Arrow's strategy to "serve the datacentre of the future". The deal, which is expected to close in Q4, is set to be $0.20 to $0.24 accretive to Arrow's earnings per share in the first year post closing, excluding the impact of the amortisation of related intangible assets.
According to Arrow's press release, Computerlinks is on course to post revenue of €700m this year. Why this is so much less than the €943m in sales Computerlinks reported for 2013 was not explained.
Either way, Munich-based Computerlinks has grown enormously since Equistone took it off the Frankfurt stock exchange in August 2008, with revenue growing by 75 per cent between 2007 and last year.
That may partly explain why Arrow is paying approximately €230m to get its man – more than twice the €104m Equistone stumped up five years ago. The other reason may be that, in that time, Computerlinks has focused as much on expanding its margins as on revenue, in 2010 setting out ambitious plans to double its EBITDA margin to 10 per cent by expanding its focus on new technology and services.
But although Computerlinks claims it is setting the pace in the cloud arena, it recently admitted its ALVEA brand remains a modest contributor to overall revenue. And although Computerlinks recently claimed its margins have expanded, it is unclear by exactly how much. Based on typical price-to-earnings acquisition multiples (between six and 12 per cent) in the distribution sector, the €230m price would suggest its EBITDA remains closer to five than 10 per cent.
Earlier this year, Computerlinks' Middle Eastern arm was penalised for shipping Blue Coat kit to Syria, which will also have taken some shine off its desirability, as will have the loss of its UK Juniper franchise a year ago.
New York-listed distributor goliath Arrow is no stranger to the M&A game in Europe and has bought into the UK security distribution space fairly recently, acquiring Sphinx in 2010. Computerlinks is a mightier beast altogether – employing 700 people in 25 countries – but still counts the UK as its largest market alongside Germany. The deal will strengthen its ties with vendors including Check Point, Blue Coat and RSA.
It is unclear whether or not the European Commission will want to scrutinise the transaction, although Arrow confirmed the agreement would be subject to regulatory approvals.
The sale would represent the latest example of one of Europe's last remaining sizeable pan-regional VADs selling up to a global, US-based competitor, with SDG and Magirus having been gobbled up by Tech Data and Avnet only last year.
Barrie Desmond, group marketing director at Exclusive Networks (pictured) - one of the few pan-European VADs left standing - feared Computerlinks may lose its identity if Arrow integrates the business too aggressively.
"The trouble with pioneers is that they get Arrows in their backs," he said.
"Computerlinks has obviously pioneered the VAD model on a pan-European basis although through size and scale more lately has drifted more towards high-volume, broadliner country. It remains to be seen if it will maintain its identity and specialism, or be gobbled up, consumed and lose their autonomy. Only time will tell - but i fear it will be the latter."
Laura Bouchard, UK sales director at Avnet Technology Solutions, said the acquisition demonstrates the importance of networking and security in the datacentre.
"Avnet Technology Solutions UK has seen exponential growth with its emerging vendor partners in the area of networking and security, specifically in relation to the datacentre. It's our intention to continue to invest in growing this part of the business," she said.
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