After months of mystery and speculation, Synnex has been confirmed as the soon-to-be new owner of Datatec's distribution arm Westcon-Comstor, after agreeing an $800m (€711.3m) buyout. In addition to the deal - which only covers the comms and network VAD's business in the Americas - Synnex has agreed a $30m investment to snap up 10 per cent of Westcon-Comstor business across the rest of the globe, which is being dubbed Westcon International. The Westcon brand will also remain in place for the Synnex-owned North and Latin American business.
The total $830m fee includes $500m in Synnex shares, $130m in cash, and a cash earn-out payment of up to $200m, subject to Westcon-Comstor's performance in its 2018 fiscal year. The $500m share component is intended to give Datatec a 10 per cent stake in Synnex, mirroring the portion of Westcon International that will be owned by the US distributor. Depending on share-price levels at the deal's closure - which is subject to shareholder and regulatory approval - Synnex could opt to settle this portion of the deal's fee with a cash payment, although this is not the intention, explained Datatec CEO Jens Montanana.
The retained Westcon International unit - which includes the firm's EMEA and APAC business, encompassing a total of 52 per cent of the $4.5bn global revenue total - contains the bulk of the distributor's central back-office functions. Datatec will continue to provide some functions to Synnex for an "arm's length fee", said Montanana. Westcon currently spends about $60m a year on these central costs, and the intention is to "rightsize" this figure in the coming months to a total of $30m.
On a conference call with investors, the Datatec chief admitted that "this transaction didn't come at an optimum time for us", as the firm continues to struggle with the complications of a tricky SAP rollout which has impacted the firm's financial performance. He acknowledged that the complicated structure of the acquisition - which also includes mutual boardroom representation - was unorthodox, but claimed that it was the right deal for the circumstances.
"We couldn't get the value that we sought for the rest of the business [in EMEA and APAC]," he said. "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."
More at stake
Synnex has the option to double its stake in Westcon International to 20 per cent, although no concrete details of timescale or price have been announced. Synnex also has first refusal on making an offer to acquire it in its entirety if Datatec ever looks to sell the remainder of the business in the future.
Headquartered in California, Synnex has a business that is split into three strands, covering enterprise IT distribution, component distribution to large datacentre customers, and a business process outsourcing operation (BPO) under the Concentrix brand. In its 2016 fiscal year its group revenue rose 5.4 per cent to $14.06bn, with $12.49bn coming from distribution activities, and $1.59bn coming from its BPO business. The acquired Westcon-Comstor business brings with it an additional $2bn-plus in revenues, including about $1.5bn from North America, and more than $500m from Latin America.
Datatec first announced in January that it was in discussions over a mysterious "transaction" related to a portion of its business, although it neglected to say if the talks related to Westcon-Comstor, integrator Logicalis, or the firm's smaller services business. Following several such cryptic announcements, in April the company finally confirmed that the discussions pertained to a potential $800m deal for the Westcon-Comstor business. At that time Synnex and Arrow were fingered by industry chatter as the two parties in the frame for a potential buyout, with European giant ALSO another name that was later thrown into the mix.
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