Major distributor acquires billion dollar IBM business

The announced that distributor Synnex will pay just over half a billion dollars for IBM’s worldwide customer care services business is a significant business move, but underlining this deal is that going forward the distributor no has a powerful ally in Big Blue.

Synnex and IBM agreed to a $505 million purchase agreement consisting of approximately $430 million in cash and $75 million in Synnex common stock. Synnex plans to merge this new business unit with its on Concentrix subsidiary.

According to Synnex, this deal will extend Concentrix’ geographic reach as client requirements for Business Process Outsourcing (BPO) have shifted towards high value business outcomes, insights, and alternative delivery models.

Margaret Goldberg, an IT services analyst at Ovum, said that the merging of IBM’s CRM business with Synnex’s subsidiary Concentrix elevates the previously tier 2 player into one of the top players in the industry.

“We expect it to make quite a bit of noise given IBM’s history, capabilities, and client base that Concentrix is picking up. What’s more, Synnex now picks up IBM as a major alliance partner, as the two vendors announced a multi-year strategic business partnership where Synnex will provide global CRM BPO services for IBM,” Goldberg said.

Kevin Murai, CEO of Synnex, said this acquisition will make Concentrix a global Top 10 player in a growing market. This strategic acquisition will create an even more compelling value proposition for clients and shareholders.

From the IBM side, Lori Steele, GM of IBM Global Process Services, the pace of change in customer care requires constant innovation. This acquisition by Synnex further enhances our mutual commitment to client satisfaction through one of the world’s top customer experience BPO providers. Clients can invest with confidence in the proven abilities of these two leaders to deliver the best customer care solutions.

The plan at Synnex is to enter into a multi-year agreement with IBM in which Concentrix will become an IBM preferred business partner for global customer care BPO outsourcing services, providing an extended ecosystem and delivery engine for Concentrix’ and IBM’s extended partners and solution providers.

Once the transaction is complete, Concentrix will have approximately 45,000 employees servicing over 300 clients in over 40 languages through over 50 delivery centers on six continents.

The transaction is expected to initially close in the coming months, subject to the satisfaction of regulatory requirements and customary closing conditions.

Until the transaction is completed, the companies will continue to operate independently.

Goldberg added that given IBM’s mature CRM offerings and fairly deep capabilities, the acquisition will allow Concentrix to capitalize on key trends in CRM outsourcing that Ovum’s research has identified as major growth areas for the industry including the ongoing growth in the popularity of newer channels such as social media and SMS. Additionally, IBM’s numerous delivery centres globally means Concentrix will now be able to deliver services from a much broader range of locations.

“This transaction illustrates the continuous effort of CRM vendors to diversify, as the acquisition will help Concentrix increase the depth and breadth of its offering including capitalizing on technology trends from mobility to cloud systems to analytics. The outsourced contact center sector has performed well with several of the top players posting improved year-on-year revenues in the first half of the year.

“The deal is also an interesting move for IBM, as the IT powerhouse – bested by rocky earnings as of late – pursues a strategy of exiting relatively lower-margin businesses (and acquiring other companies) to concentrate on higher value-add and potentially more lucrative areas in IT services, consulting and cloud. With this deal, which will close in a few months, IBM will still be able to offer CRM BPO services as part of its end-to-end value proposition to customers, without shouldering the financial challenges of that business. We will be curious to see whether IBM makes similar decisions regarding other parts of its business going forward,” she said.

The transaction is expected to add an estimated $120 million in earnings before interest, taxes, depreciation and amortization and approximately $0.55 in fully diluted earnings per share excluding one-time charges and integration costs in the first 12 months post the closing of the transaction. The $405 million purchase price premium includes an estimated 40-50 per cent in intangible assets which will be amortized over two to ten years.

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