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Synnex CEO: Westcon-Comstor Deal Gives Us Pathway To Expanding Beyond The Americas

Synnex CEO Kevin Murai said the company has taken a 10 percent stake in Westcon International, and gained certain first rights of refusal should an offer come in for all or part of the $2.35 billion business.

Synnex CEO Kevin Murai said the $830 million purchase of Westcon Americas also provides the distributor with an opportunity to gain an international footprint.

"This does give us a good pathway to look at expansion opportunities beyond just the Americas," Murai told Wall Street analysts Tuesday. "The rest of the Westcon-Comstor business is attractive for a number of reasons to us."

Under the deal announced Tuesday Synnex is acquiring Datatec's Westcon-Comstor Americas business and will become a minority shareholder in Datatec's Westcon EMEA (Europe, Middle East and Africa) and Asia-Pacific businesses. The $30 million Synnex is specifically paying for the 10 percent stake in Westcon International also gives Synnex certain first rights of refusal should another offer come in for all or part of the $2.35 billion international business, as well as giving Synnex the opportunity to purchase an additional 10 percent interest, within 12 months of closing.

[RELATED: Distribution Shakeup: Synnex To Buy Westcon-Comstor's Americas Business For Up To $830M]

Synnex is currently the only North American publicly-traded distributor that doesn't do any business in Europe. The company's stock was up $0.57 (0.51%) in trading early Tuesday to $111.59 per share.

"The experience that Westcon-Comstor and [parent company] Datatec have in doing business beyond North America – we view that as a great value-add to our company," Murai said.

Westcon International is currently in the middle of a major transformation involving business process outsourcing and shifting to the SAP enterprise resource planning (ERP) platform, Murai said. As a result, Murai said both companies thought it would be best to allow Westcon International to focus all of their efforts on driving the business and successfully concluding that transformation project.

"From a timing perspective, we just felt it was better for us to acquire the Americas business now, and then provide us with a pathway at looking at the international business at the right point in time," Murai said.

Westcon-Comstor's EMEA business saw sales in the most recent fiscal year, ended Feb. 28, decline 12 percent to $262.7 million due to transitional challenges and delayed financial reporting from the November 2016 European SAP implementation, as well as weak trading conditions in the Middle East and Africa.

Westcon-Comstor was the first distributor to launch a truly seamless global offering and Murai said that continues to be a robust part of their overall business. Acquiring a minority stake in Westcon International will enable Synnex to provide a seamless global offering to customers and vendors that require an international presence, Murai said.

The current arrangement will preserve that global offering, Murai said, and provide a solid foundation for maintaining ownership and interest for those involved with Westcon International. Murai said the companies also struck a cooperation agreement whereby Synnex will help facilitate opportunities that arise in the Americas but apply to other regions, and vice versa.


Meanwhile, Murai said purchasing Westcon-Comstor's $2.18 billion business in North America and Latin America will unlock new vendor relationships. Chief among those is Cisco, which represented a nearly $700 million business for Westcon Americas in its most recent fiscal year.

Synnex today is the only North American broadline distributor not carrying Cisco products.

"Within our distribution business, we continue to shift to where technology is heading," Murai said. "Gaining strength in the growing security, UCC [unified communications and collaboration] and networking markets has been a priority, and we believe today's announcement is a great step forward in evolving our company."

The Westcon Americas acquisition is expected to close in the third quarter of calendar year 2017, and provide a low- to mid-single digit boost to earnings per share in the first year after closing. The deal's profitability is expected to accelerate in the second year after closing, Murai said, thanks to anticipated growth in the combined businesses and synergies around systems and back-office processes.

"Really, the strategic benefit of this investment goes well beyond the transitional year," Murai said.

The $830 million Synnex is paying in the deal includes $500 million in stock and $100 million in cash, up to $200 million earn out if certain financial targets are met through February 2018, and the $30 million for the stake in the international business.

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