Datatec has lifted the lid on its mystery M&A negotiations and revealed that it is in discussions to sell "a major share of Westcon-Comstor's operations" for a potential price of more than $800m. Additionally, the company - which also owns integrator Logicalis - announced that profitability for its 2017 fiscal year is set to be cut in half, following a weak fourth quarter for Westcon-Comstor in EMEA.
Johannesburg-listed Datatec first announced in January that it was in discussions pertaining to a potential "transaction", but did not reveal which part of its business the talks related to. It issued an update in March announcing that the discussions were ongoing, but again failed to disclose the subject of the dialogue. Today the company confirmed that it is mulling a deal worth a total in excess of $800m to sell at least a significant part of the Westcon-Comstor unit, which includes comms, networking, security, and datacentre infrastructure distribution activities.
Datatec did not name any prospective acquirers, but in the last few months channel chatter has suggested that US giants Arrow and Synnex are the only two viable bidders, and that both harbour some interest in a deal. CRN sister publication Channelnomics Europe has contacted both Arrow and Synnex requesting comment for this story. The former indicated that it does not respond to speculation, and we were awaiting awaiting response from the latter at time of going to press.
In its 2016 fiscal year Westcon-Comstor's turnover was flat at $4.9bn. Operating profit dropped 37.9 per cent year on year to $62.2m, having been impacted by currency fluctuations and problems arising from the initial stages of a global rollout of SAP software.
This equates to 75 per cent of Datatec's total top line. The company operates in more than 60 countries across the world, and its sales are fairly evenly split globally, with 37 per cent generated in North America in FY16, 33 per cent coming from Europe, and 10 per cach in Asia-Pacific, Latin America, and Africa and the Middle East.
Its core vendor partnerships include Cisco, Avaya, Polycom, Juniper and Check Point, and its business is, again, fairly evenly split along technological lines. Some 34 per cent came from security in FY16, with 26 per cent from unified communications, 25 per cent from networking, and 18 per cent from datatcentre and other technologies.
Alex Tatham, managing director of UK-based distributor Westcoast, said: "Westcon-Comstor is an excellent distributor. It is no surprise that, following Datatec's January announcement, this was a likely sale and I am sure that whoever gets it will value it as a very important global distribution business."
More SAP headaches
Elsewhere, Datatec announced that, contrary to earlier predictions, the firm will see a hefty decline in underlying profitability. In October last year Datatec issued an interim results statement for the first half of FY17, in which it forecast that underlying earnings per share (EPS) for the second half were expected to improve on both a sequential and year-on-year basis.
But today the firm announced that it now expects both underlying and headline full-year EPS to decline by at least 50 per cent lower in comparison with the prior year. In FY16 underlying and reported EPS stood at $0.32 and $0.19, respectively, and those figures are anticipated to drop by at least $0.16 and $0.10 for the year that closed on 28 February. Datatec indicated that it "will provide a more detailed trading statement as soon as practicable".
The decline in profitability is related to a deterioration in Westcon-Comstor's performance in the EMEA region during the fourth quarter of the year. This was largely attributed to a problematic ERP rollout in the region.
"Westcon-Comstor experienced disruption to the business as a result of final stages of SAP implementation in EMEA," said today's statement. "Westcon-Comstor has made adjustments to the operating model and Datatec expects this to support a rapid recovery."
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