ScanSource Europe to shut down operations following €30m private equity sale - sources

Josh Budd
clock • 5 min read
ScanSource Europe to shut down operations following €30m private equity sale - sources

Distributor starts redundancy process across entire business according to CRN sources

ScanSource Europe is in the process of shutting down its entire business following its €30m sale to a private investor last year, according to multiple sources.

Sources told CRN that the Zebra, Avaya, Extreme Networks and Poly distributor is in the process of making its entire workforce redundant across all of its operations in Belgium, France, Germany and the UK.

The redundancy process, which will affect around 300 ScanSource employees, is set to complete between February and March this year, CRN understands.

The communications and point of sale distributor was sold to private equity firm Ten Oaks Group for $30m last November. Based in the US, Ten Oaks claims to specialise in investing in corporate divestitures and targets businesses with less than $50m in EBITDA.

The redundancy process does not include UK-based cloud distributor IntY, which is still owned by ScanSource's US parent and was not included in the sale to Ten Oaks Group.

Sources told CRN that suppliers stopped shipping to ScanSource Europe at the beginning of the year. Customers were informed by ScanSource sales staff last week that it no longer has stock for some items due to liquidity problems and advised them to contact another distributor.

ScanSource Europe and ScanSource Inc both told CRN that they did not wish to comment on this story, while Ten Oaks Group did not respond to our requests for comment by the time of publication.

The news came as a shock to many, with some sources saying the scale of the closure is unprecedented.

"I can't remember anything as profound as this in our industry," said one source.

"They're such a large organisation with massive turnover. Yes, some of their market share has been eroded over the last couple of years, but to go from being sold for €30m in November to collapsing in December and January - it's staggering."

The distributor looked like it was emerging from a long 15-month period of uncertainty in November after its US parent, ScanSource Inc, announced that it had secured a buyer for the entire business.

At the time, ScanSource's European president, Maurice van Rijn, told CRN's sister publication CPI that the investment meant the firm could finally take a long-term view of the business.

But some sources suggested to CRN that dismantling ScanSource Europe could have been the plan all along for its US parent and Ten Oaks Group.

Sources pointed to the nature of ScanSource Europe's new owner as a specialist in divestitures and corporate carve-out transactions.

They also pointed to an earnings call on 31 August 2020 in which ScanSource CFO Gerry Lyons said that the firm was provisioning for a $9m pre-tax cash charge for "severance-related benefits" in the first quarter of its fiscal 2021 - which is possibly linked to the redundancies in Europe.

Sources also suggested that ScanSource Europe's management believed that Ten Oaks would be a long-term investor in the business.

"I don't believe that the management team of ScanSource Europe understood that to be the situation. I genuinely think they thought they had been purchased by somebody who was going to invest in them and they were going to be a successful business," one source said.

"Many employees have been taken for a ride, including [European president] Maurice van Rijn," another source added. "Many people are very upset."

ScanSource Inc first announced plans to sell off its hardware business across Europe, Latin and South America in August 2019. The combined assets were worth $623m in annual revenues, with the European business making up the majority of that figure.

At the time, ScanSource CEO Mike Baur told our sister brand CPI that its hardware business was finding it difficult to gain scale in a "fragmented" European market.

Sources suggested that, while ScanSource has been a leading player in the UK market over the last 20 years, the arrival of distributors from the US and Germany has caused some problems.

"ScanSource had a methodology about how to run a distribution business. It was based on leveraging the manufacturers and buying in bulk - taking away a lot of the vendor's costs, but then expecting a lot in return," said one source.

"When ScanSource first came to Europe, they got away with that. They brought that American model over because they were the only game in town. But over the last 20 years, Ingram became very strong, Blue Star came over who are a different sort of business that is closer to the customer geographically. Then Jarltech in Germany began to really ramp up their activity," they said.

"While they were flying high it all made sense, but those three big companies began to eat some of their lunch.

"At that point, ScanSource had to cut costs, otherwise they were going to have problems. But they didn't want to adopt a slimmed down model where people further down the organisation were making decisions."

Others said ScanSource's centralised management and logistics model created bureaucracy and a lack of agility in the business.

The firm began to centralise its warehouses at the beginning of the 2010s. It closed down its UK facility in 2010 and relocated stock to its main site in Belgium. Then, following its acquisition of German distributor Algol Europe, the firm also shuttered its warehouse in Cologne.

"That's not sustainable when you're dealing with many countries," another said.

"And they were based in Belgium so had a really high cost. If you're setting up in Europe, Belgium wouldn't be the place you do it from an employment cost perspective."

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