A Deal That Stinks
For those who missed it, Platinum Equity, a privately held technology investment firm known for driving a hard bargain, will pay a mere $254 million in cash for CompuCom, a 17-year-old solution provider with $1.45 billion in annual sales. So is CompuCom really worth only $254 million? Gimme a break. That's less than the $296 million in services revenue that CompuCom did in 2003. Never mind the $1.15 billion in product sales that appear to be completely ignored. And CompuCom is a company with thousands of long-standing customer relationships.
To say investors were stunned by the valuation would be an understatement. Try flabbergasted. Channel companies are often undervalued relative to other IT companies because of the poor job the industry does promoting the value delivered by solution providers. That said, $254 million is highway robbery by any measure"unless the business is in worse shape than is evident.
CompuCom Chairman Edward Coleman and Broadview International Managing Director Edward Males, who represented CompuCom, both insist the price is perfectly respectable. Of course, both Coleman and Males stand to see a big payday from the deal.
Males, who has brokered services deals for a decade, said the price that Platinum is paying is in line with other deals. CompuCom's product business was under margin pressure from companies such as Dell and Hewlett-Packard, he said. The services business was flat and at the lowest end of the services spectrum, he said.
So what is the right mix of product sales vs. services revenue? There is no clear answer. Certainly, you are going to get a higher valuation with a high services quotient, predictable, recurring revenue, sharp vertical focus, business re-engineering expertise and tight ties to long-standing customers. Sounds like on demand to me.
Some solution providers are worried that the CompuCom deal could be dredged up later to drive down the values of other deals. Those solution providers need not be concerned. The CompuCom deal is so out of whack that it fails to pass the smell test. Does it smell right? Not by a long shot. Plainly and simply, it stinks. Does this deal offend your schnoz? Let me know at (781) 839-1221 or via e-mail at [email protected].