Four key points from Computacenter's proposed acquisition of Pivot

Today Computacenter announced its CAD 105.8m (€67.94m) purchase of Canada-based solutions provider Pivot Technology Services.

If the deal clears shareholder approval, Computacenter will double its sales and headcount in the US and gain a new presence in Canada.

Acquiring Pivot TS will mean that Computacenter now has a $2bn-revenue business in the United States and a headcount of approximately 1,200.

We breaks down the key things you should know about the Pivot TS business and how it fits into the Computacenter mould in the US.

Vast similarities in how both firms do business

Take a closer look at the Pivot TS business and it won't take you long to find out that it sits slap bang in the middle of Computacenter's sweet spot in terms of customer profile, product offerings and vendor alliances.

Pivot TS' strategic vendors run almost exactly parallel to Computacenter's. Dell, Cisco, HP, HPE, VMware, AWS, Microsoft and NetApp all come right at the top of both firm's vendor lists.

You'll also find striking similarities in the customer profiles of both Computacenter and Pivot TS. Like Computacenter, Pivot has a strong foothold in the public sector in the US and Canada - claiming to serve more than 1,000 SLED (state, local and education) clients. It also claims to serve more than 370 financial clients - another key customer base for Computacenter - as well as more than 50 of the Fortune 100 businesses.

A final obvious similarity is in the revenue mix between product and services between Computacenter and Pivot TS.

Less than a quarter of Computacenter's £5.05bn global revenues come from services, with its Technology Sourcing business accounting for the vast majority (£3.82bn) of its revenues in 2019.

Pivot's business is even more slanted towards selling products over services. 88 per cent ($1.07bn) of the Canadian firm's revenues stem from products, while just 6.5 per cent of its sales are from providing its own services.

Computacenter encroaching on dominance of CDW, Insight and WWT

Computacenter now has a business worth $2bn in sales in the United States. Looking at CPI's Global Elite report published last year, Computacenter's operations are now of a similar size to established US solution providers such as Presidio, Zones and Connection.

Although still a fair way behind CDW's $16bn-revenue business in the US, or the clout of Insight and PCM's combined $6bn US business, it is difficult to deny that the Computacenter brand will now carry much more weight in America, and its wide coverage of the US market makes it a serious national contender.

Acquiring Pivot gives Computacenter additional coverage across the US. Computacenter's acquisition of FusionStorm in 2018 gave Computacenter a presence in New York, San Francisco and Irvine, California.

The Pivot acquisition complements its existing footprint, adding several new territories on the West coast and in the South east -in California, Washington, Texas, Georgia and Florida.

Lets not forget that acquiring Pivot TS will bring Computacenter an $80m-revenue services business, which will allow the UK firm to expand what it currently does in the US market.

Pivot TS' financials are on a downwards trend...

Computacenter is no stranger to acquiring companies that come with some financial baggage. FusionStorm was running wafer-thin margins of just 0.65 per cent before Computacenter acquired it in 2018. And its purchase of Misco's last standing subsidiary, in the Netherlands, after its collapse in the UK follows a similar trend.

Pivot's financial situation has shown a trend of declining revenues and gross profits over the last few years.

The Canadian firm's revenues fell by 16 per cent year on year for the first six months of 2020 to CAD 708.94m. Its gross profits similarly fell by six per cent over the same time frame to CAD 102.28m while operating profit fell by 26 per cent CAD 12.79m.

Meanwhile, the firm's annual revenues have fallen by 19 per cent between 2017 and 2019.

...And is in the middle of its own transformation

Pivot's management began to take action to push its financials in the right direction. It implemented a so-called transformation plan in 2018 which focused on removing annual costs from the business.

The firm began to centralise some of its functions and operations, reduce facility costs and "terminate underperforming relationships" in an effort to save $5m in annual costs.

It also terminated some consulting contracts, shut down two offices in the US and removed 26 positions from the company.

In 2019, the firm saved an additional $2m primarily through staff reductions.

Pivot TS said the initiatives will help it to accelerate growth for its services business while also allowing its product business to operate with a lower cost base.

The firm also sold off its so-called Smart-Edge business to Intel for $27m in October 2019.

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