Tim Mueller’s Transaction Analysis: New IT M&A Deals June 9

SYNNEX to Acquire Datatec’s Westcon-Comstor North America and Latin America Businesses

Financial Information*

  • Enterprise Value of NA and LATAM Assets: $915M
  • EV/LTM Revenue: ~$2.2B
  • EV/LTM EBITDA: ~$89M

Transaction Facts

  • SYNNEX Corporation (NYSE: SNX) and Datatec Ltd (JSE: DTC) announced today both parties have entered into a definitive agreement in which SYNNEX will acquire a 100% stake in Datatec’s Westcon-Comstor North America and Latin America Businesses, as well as 10% of its EMEA and APAC businesses.
  • For the NA and LATAM businesses, SYNNEX will pay $500M in stock, $100M in cash and up to $200M in earn out if financial targets are achieved through February 2018. For the EMEA and APAC businesses, SYNNEX will pay $30M in cash for the 10% ownership stake.
  • Approximately $115M of net debt will be assumed and refinanced with the close of the transaction, with an option to pay all cash, contingent on share price at closing.
  • The transaction is expected to close in Q3 2017.

Unfolding a New Chapter

  • Win-Win Situation: With both parties expressing enthusiasm for the deal, the acquisition will serve to simultaneously offset financial losses for Datatec and help SYNNEX achieve greater scale. Datatec attributed recent lackluster performance to Westcon-Comstor’s difficulties in the EMEA region, but the future is looking brighter already; following the announcement, Datatec shares jumped up to 27 percent in Johannesburg, hitting the highest level in one day since at least 1995.
  • Road to Recovery: First addressing shareholders in January, Datatec confirmed its negotiations to sell a major stake in Westcon-Comstor in early April. As Datatec’s largest subsidiary, the value-added distributor is looking to recover lost ground with the sale. In the last fiscal year ending in February, Westcon Americas generated ~$2.2B in revenue and ~$89M in EBITDA.
  • Strategic Buy: Operating under the skilled leadership of CEO Kevin Murai, SYNNEX has been a smart buyer and should benefit from the acquisition as it has in the past. Last August, it announced the completion of its acquisition of Minacs, a leading global outsourcing business solutions company owned by CX Partners and Capital Square Partners, for $420M. Its successful 2014 acquisition of IBM’s customer care business process outsourcing (BPO) services business for $505M benefitted both participants: IBM was able to divest what was for it a low margin segment, and SYNNEX diversified its offerings while Concentrix became a top-10 provider in the growing CRM BPO market.
  • Expanding Territory: SYNNEX had been the only North American broadline distributor not carrying Cisco, but the purchase will enable SYNNEX to tap into the over $2B in sales that come from Westcon’s Cisco-exclusive Comstor business, alongside access to key customers. This transaction also draws similarities to Tech Data’s $2.6B acquisition of Avnet’s Technology Solutions Business Unit that finalized in February, indicating SYNNEX’s long-term plan of using consolidation to expand its portfolio of higher margin services. SYNNEX’s wholly-owned subsidiary Concentrix has grown through six acquisitions and operates across six continents.

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