Datatec the parent company of WestconGroup and Logicalis, announced it is negotiating a material transaction and sources tell CRN USA the most likely outcome is the sale of US$4.9 billion distributor Westcon-Comstor (the go-to-market brand of WestconGroup).
South Africa-based Datatec said in a regulatory filing that the transaction being negotiated could have a material effect on the US$6.5 billion company's stock price if it is successfully completed. Datatec said it will not issue its usual interim management statement detailing the publicly-traded IT conglomerate's performance over the past quarter.
Sources indicated to CRN USA that Westcon-Comstor - which has struggled financially in recent quarters - is the most likely candidate to be sold. Datatec's stock is up 2.5 percent to US$3.73 per share since the announcement was made early Wednesday.
Westcon and US$1.5 billion solution provider Logicalis, also owned by Datatec, declined to comment. Datatec did not respond to requests for comment. Datatec spent US$160 million in June 1998 to purchase a 92.5 percent stake in WestconGroup and quickly expanded into Europe, which now accounts for 34 percent of the distributor's overall sales.
Westcon's revenue fell 10 percent in the most recent filing period to US$2.26 billion, with sales dropping in all of the company's geographies except Asia Pacific. The company's earnings before interest, taxation, depreciation and amortization (EBITDA) sunk by 18 percent to US$42.9 million due to lower profitability in Latin America and efforts to transform the company's business process outsourcing (BPO) practice.
Westcon derives 90 percent of its revenue from just 15 global vendor partners, chief Dolph Westerbos told CRN USA in 2015, with 42 percent of overall sales coming from its Cisco-exclusive Comstor business. Other vendors Westcon works closely with include Avaya – which filed for Chapter 11 bankruptcy protection earlier this month – Polycom, Juniper, Check Point, F5, Palo Alto and Blue Coat (now Symantec).
Westcon's security practice has grown over the past year from 33 percent to 36 percent of its overall business, and its networking practice has grown during that same period from 24 percent to 26 percent of overall sales. But Westcon's unified communications sales have dropped from 26 percent to 22 percent of revenue, and its data centre business has sunk from 17 percent to 14 percent of total sales.