Nex and Tech Data were doomed from the start

Sometimes, entering into a “strategic” partnership isn’t so strategic.

Take NexInnovations. The reseller that will now be known as Softchoice is blaming its demise on its key strategic distributor and creditor, Tech Data Canada.Conflict had been brewing under the surface for quite some time, but only recently did it become a public squabble. And it ain’t pretty.

Nex’s former CEO and director Hubert Kelly, who has now resigned, blamed Tech Data for its inability to get out of creditor protection in 2006, when the distie became its exclusive supplier. Indeed, there are claims that some of Nex’s top personnel left because of how Tech Data was handling Nex’s configuration business. Tech Data, on the other hand, claims Nex was in default of its obligations.

Let’s backtrack a bit, to make sense of this troubled relationship.

Back in 2006, Nex was $72 million in the hole. Of that, it owed Tech Data $10 million in a secured goods and services agreement. During a restructuring effort, it agreed that Tech Data would become its exclusive supplier, and that it would handle accounts receivable and customer credit screening.

But this relationship was doomed from the start. In retrospect, it’s hard to see how it could ever have worked out. Tech Data felt screwed over and wanted its money back. Nex may have been grateful for a second chance, but it was likely resentful of the loss of control over its own business.

CDN reported earlier this week that a series of affidavits were filed with the Ontario Superior Court of Justice, where Kelly was seeking creditor protection that would give Nex time to restructure. Tech Data’s senior vice-president of finance, Howard Tuffnail, wanted a receiver to take over Nex so it could recover its cash.

You can’t blame Tech Data for trying to recover its losses. But perhaps the distie went about it the wrong way, since Nex’s exclusive arrangement with Tech Data appears to have been a stumbling block on the long road to recovery.

After all, having access to all means of distribution gets you the best price available. And oftentimes it results in better customer service. A monopolistic situation – particularly one like this, fraught with power plays – has rarely resulted in better products, services or customer service.

Now that’s going to change – thankfully. After Nex obtained credit protection, Kelly stepped down and a court-appointed restructuring officer took over. Then Softchoice announced it would acquire Nex’s technology solutions and products division.

While Softchoice will keep Nex’s customer base, key account managers, and services and integration capabilities, it won’t take on any of Nex’s pre-existing debt.

Nor will it take on an exclusive distribution agreement. Softchoice has a broad distribution strategy, partnering with Synnex, Tech Data, Ingram Micro and D&H. While it will continue to do business with Tech Data, there won’t be any talk of a strategic partnership. Softchoice has made it clear that it will use any distribution partner that fits the bill.

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Jim Love, Chief Content Officer, IT World Canada

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Vawn Himmelsbach
Vawn Himmelsbach
Is a Toronto-based journalist and regular contributor to IT World Canada's publications.

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