OnX hopes split will pay off

OnX Enterprise Solutions Inc. of Markham, Ont., plans to sell its hardware, software and infrastructure solutions business to CEO Sheldon Pollack and president Phil DeLeon for $6.8 million, who will keep that business privately-owned while continuing to run the public company.
“Unfortunately, the public markets don’t particularly like VAR businesses and they’re putting a discount on our stock,” said Pollock. “So we’re turning the company into a pure-play Internet outsourcing company and taking the VAR business and privatizing that.”

“We have a desire to build a high-velocity Internet out-sourcing company,” he said. “To do that we need a high stock price. As long as we were trading as a hardware VAR it made it very difficult for us.”

The problem is that revenues of the company as it now stands are basically flat. In its last fiscal year, which ended April 30, OnX had revenue of $61.9 million, compared to $60.2 million the previous year.

At the time of the announcement shares were trading on the Toronto Stock Exchange at 18 cents, only three cents above where they were 12 months ago.

While the VAR side generated about $45 million in revenue in the past year and the managed services side pulled in about $15 million, it’s the later business that has the growth and larger margins.

Pollock said the Internet business had margins of roughly 35 to 40 per cent.

Hardware margins from the sale of IBM, Hewlett-Packard, Cisco Systems and Sun Microsystems gear alone in the VAR business are less than 15 per cent, he said. While margins from its services business were double that, most of the VAR side’s revenues came from hardware sales.

A shareholders vote on the proposal is scheduled for Nov. 28.

Pollack and DeLeon founded OnX in 1983 as a broker of mid-range computer systems. Together they own about 40 per cent of the company and will continue running it. However, as affected parties they can’t vote on the proposal.

Not in management

Although they will be majority owners and directors of the privately-held VAR business, Pollack and DeLeon will not have management roles there. Current OnX vice-president Ed Vos — who joined OnX in March — will move to the new private company as its president.

Under the proposed deal the private VAR business will keep the OnX Enterprise Solutions name, while the managed services company will get a new moniker.

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Jim Love, Chief Content Officer, IT World Canada

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Howard Solomon
Howard Solomon
Currently a freelance writer, I'm the former editor of ITWorldCanada.com and Computing Canada. An IT journalist since 1997, I've written for several of ITWC's sister publications including ITBusiness.ca and Computer Dealer News. Before that I was a staff reporter at the Calgary Herald and the Brampton (Ont.) Daily Times. I can be reached at hsolomon [@] soloreporter.com

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