Synnex Completes Westcon Americas Purchase; Partners Look For Consistent Staffing, Service Levels

Westcon Americas partners hope that the close of Synnex's acquisition will result in more cybersecurity investment while not disrupting existing staffing and service levels.

"We are hoping that Synnex allows Westcon to continue operating as a value-added distributor, continually bringing new products to the table and working with us on margin to support us in growing our business," said Danny Timmins, national cyber security leader at Mississauga, Ontario-based MNP LLP.

Although Timmins expects that margins will typically remain low for most products, he would like to see Synnex push Westcon to work with partners like MNP around larger deals so that they can obtain a better margin.

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The completion of Fremont, Calif.-based Synnex's acquisition of Tarrytown, N.Y.-based Westcon's $2.18 billion North American and Latin American businesses was announced Friday. Synnex had been the only North American broadline distributor not carrying Cisco, while 32 percent – or nearly $700 million – of Westcon America's revenue comes from Cisco.

"We believe this talented team and their recognized leadership in the security, UCC and networking space will enhance our value proposition in the marketplace," Kevin Murai, Synnex's president and CEO, said in a statement. "The acquisition of Westcon-Comstor Americas continues to build on our strategy of positioning the business to where technology is growing."

Synnex will be paying $600 million in cash upfront for the business, as well as up to $200 million in earn-out payments if gross profit performance targets are achieved through February 2018. The distributor said it expects the acquisition to generate $0.70 in diluted non-GAAP earnings per share in the first 12 months after close.

Synnex paid an additional $30 million for a 10 percent stake in Westcon-Comstor's $2.35 billion international business, which includes Europe, the Middle East and Africa, and Asia-Pacific. Synnex is currently the only North American publicly-traded distributor that doesn't do any business in Europe.

"The strategic partnership between Westcon International and Synnex will provide significant growth opportunities for both businesses while working together to serve vendors and customers globally," Jens Montanana, CEO of Westcon-Comstor parent company Datatec Ltd., said in a statement.

Datatec shareholders voted to approve the acquisition at a general meeting Wednesday, and the company said all other conditions needed to complete the transaction had been satisfied.

Westcon-Comstor said its Americas and International businesses would operate under a single go-to-market structure to ensure that its vendor partners and solution providers receive the same level of service. The $800 million acquisition also gets Synnex into Latin America for the first time thanks to Westcon America's 800-employee, $517.8 million business across 12 countries in the region.

As part of the acquisition, Synnex will have the right to representation on Westcon International's board, as well as certain first rights of refusal should another offer come in for all of part of the $2.35 billion Westcon International business. Synnex will also have the option to acquire an additional 10 percent interest in Westcon International for another $30 million within 12 months of closing.

The acquisition is expected to provide Synnex with 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 thanks to anticipated growth in the combined businesses and synergies around systems and back-office processes, Synnex CEO Kevin Murai said in June.

Datatec Ltd., the parent company of Westcon-Comstor, will acquire a 10.25 percent equity stake in Synnex. Datatec CEO Jens Montanana additionally plans to join Synnex's board of directors, subject to compliance with legal and regulatory requirements.

Datatec said it plans to retain $130 million of the acquisition proceeds for various operational and working capital and expansion funding requirements. The majority of the remaining $500 million – as well as the entire earn-out – will be returned to Datatec shareholders by way of share repurchases or a special dividend, according to Datatec.

Westcon-Comstor's U.S. partners will benefit from better access to public cloud, storage, and enterprise computing capabilities, WestconGroup CEO Dolph Westerbos told CRN in June. The company recently launched a relationship with Amazon Web Services in Canada, Westerbos said, but doesn't have a relationship with Microsoft Azure or AWS in the United States.

Synnex's strength on both the enterprise storage and compute side should also be appealing to Westcon Americas customers, Westerbos said, particularly as it relates to the distributor's strong relationships with Hewlett Packard Enterprise, Dell and Lenovo.

Synnex's partners, meanwhile, will benefit from Weston-Comstor's phenomenal footprint in unified communications, security and networking, Westerbos said. They can also take advantage of Westcon Americas' relationships with leading data center network vendors like Palo Alto Networks, F5 Networks and FireEye, according to Bob Stegner, Synnex's senior vice president of North American marketing.

Synnex today supports networking, unified communications, and network security through its ConvergeSolv practice, with both Synnex and Westcon-Comstor enjoying relationships with Check Point Software Technologies, Symantec and Avaya, Stegner told CRN in June. He said there wouldn't be any changes to Synnex's ConvergeSolv or Westcon's North American businesses at the very beginning.

Westcon-Comstor partners shouldn't expect any changes in the Latin America business, Stegner said, with the employees supporting those customers remaining in place after the deal closes. As for legacy Synnex partners, Stegner said the distributor would need to work with its current vendors as far as supporting them in Latin America is concerned.