Synnex Acquires Weston-Comstor Americas, Expanding Portfolio of Services

Datatec Ltd announced Tuesday plans to sell its Westcon-Comstor American operations to Synnex Corp, a deal worth up to $800 million that allows the South African IT firm to offload part of its struggling value-added distributor business.

The Fremont, Calif.-based distributor will pay 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 will have the option to acquire an additional 10 percent interest in Westcon International for another $30 million, the companies said in a statement.

“What that means to some of our VARs is they have a global footprint. That’s could be as simple as a satellite office in London, for example, that will be able to do one stop shopping with us, especially with Weston-Comstor International,” Bob Stegner, Synnex senior VP of marketing North America told The VAR Guy.

Datatec reported a whopping 66 percent drop in annual underlying earnings last month, due in large part to the implementation of its SAP Enterprise Resource Planning system and business process outsourcing across Westcon-Comstor operations in the Asia-Pacific and Europe, Middle East and Africa regions.

Datatec first confirmed its intent to sell a major stake in its value-added distributor subsidiary in January, and confirmed negotiations in early April. In the last fiscal year ending in February, Westcon Americas generated about $2.2 billion in revenue and approximately $89 million in EBITDA. 

As for Synnex, the acquisition adds Cisco to its roster of solution providers. Prior to the deal, Synnex was the only North American broadline distributor that didn’t count Cisco among its vendor partners. Meanwhile, nearly half of Westcon's sales come from its Cisco-exclusive Comstor business. The deal also adds data security, wireless routers and video meeting equipment to Synnex’s portfolio of video graphic processors, hard-disk drives and USB thumb drives.

“It’s great for customers and the two companies because there’s not a lot of overlap,” said Stegner. “We’re focused on the server and storage business, which is complementary to Westcon if you think about their security, UCC and network business. It’s a great fit for the two companies.”

Synnex will pay $130 million in cash and $500 million in stock. The stock payout gives Datatec a 10 percent stake in Synnex. If certain financial targets are met in the year to end February 2018, it will fork over a further $200 million cash payment.

"Westcon-Comstor North America will benefit substantially from being part of a bigger businesses with a much larger addressable market – and so will our shareholders [with] our stake in Synnex," Jens Montanana, CEO of Datatech, said in a statement. "Post-transaction, the Westcon-Comstor businesses with work seamlessly together for our vendors and customers globally."

The deal is the latest and greatest in a series of acquisitions by Synnex, including its $420 million purchase of global outsourcing business solutions company Minacs last August. In 2014, it acquired IBM’s customer care business process outsourcing (BPO) business for $505 million. Stegner says the acquisitions signal a recognition of the consolidation of the distributor marketplace and fall in line with the strategy CEO Kevin Murai has laid out for Synnex.

“This complements our plan. It basically moves our strategy to the forefront,” he said.

The transaction is expected to close in the third calendar quarter of 2017. The parties have agreed Datatec would pay a break fee of about $25 million if Datatec breaches the transaction agreement.