At the close of business last Friday as the IT industry heading off for the three-day Thanksgiving break, Softchoice Corp. entered into a purchase and sale agreement to acquire the products division of Toronto-based NexInnovations Inc. for the bargain basement price of $10 million.
NexInnovations this year ranked second on CDN’s Top 100 Solution Provider list with revenues between $500 to $550 million.
This deal basically ends the almost 30-year storied history of the largest IT reseller in Canadian history. It is also subject to court approval and normal regulatory approval.
Under the terms of the agreement, Softchoice has agreed to buy the assets associated with the NexInnovations product business. This includes customer relationships and records along with certain assets. Softchoice also confirmed that it will be hiring key employees associated with supporting these customer relationships.
David MacDonald, president and CEO of Softchoice, said in a prepared statement that this acquisition provides Softchoice with an exceptional opportunity to add to the company’s enterprise customer base in Canada.
MacDonald added that he is looking forward to forging stronger and deeper relationships with each of these customers to demonstrate the immediate value that Softchoice can bring to bear in helping them to select, acquire and manage their information technology resources.
Market analyst Michelle Warren of Info-Tech Research, said Softchoice’s acquisition of NexInnovations’ technology solutions business is a wonderful move.
This decision will enable Softchoice to broaden their reach, including moving deeper into some accounts. NexInnovations’ customers, who were shocked by the announcement last week, can trust that, if they choose to work with Softchoice, that they are lucky. The customers are the real winners with this announcement. Although, Softchoice shareholders will definitely benefit from this strategic business acquisition,” Warren said.
Based on the trailing 12-month gross revenue of approximately $200 million attributable to this business, Softchoice estimates that this transaction will be accretive to its shareholder value in 2008. Funding for the transaction will be provided from Softchoice’s current credit facility.
Softchoice’s acquisition of NexInnovations ends a week of speculation about the one-time reselling giant.
According to sources, NexInnovations employees were instructed to stay home as of Oct.2 and to return company owned computer equipment.
Other sources reported to CDN that the Winnipeg office remained open. Just over a year after it first filed for creditor protection, CDN learned NexInnovations ran into financial difficulty.
Spokespeople from NexInnovations along with many other industry executives close to the situation could not be reached for comment. Tech Data Canada did confirm that according to public documents, NexInnovations had again filed for protection from its creditors under the Companies’ Creditors Arrangement Act (CCAA).
Ed Vos, president of ONX, told CDN that the CCAA has been informed that the leadership team at NexInnovations is no longer in place and that they have hired a company that is a restructuring specialist.
Vos did not know who those companies are.
Vos also said that an outside firm has been hired to optimize the assets that still remain inside NexInnovations.
“My position is that this is very unfortunate what happened to NexInnovations and that Hubert Kelly is a first class guy,” Vos said.
Vos believes that the fall out of NexInnovations will create an upside for most of the top solution providers in Canada.
When NexInnovations first filed for creditor protection in 2006, its major creditors included Tech Data, Wachovia Capital Finance Corp. and IBM Canada Ltd. Two of those companies now say however they are no longer owed money by NexInnovations. Wachovia is not involved in the recent developments says Mark Laugesen, a partner with Bennett Jones LLP, representing Wachovia.
“Wachovia was involved in the last filing, and Wachovia was paid-out in full,” said Laugesen. “They’re not owed money any longer by NexInnovations, that debt was extinguished. They’re not involved in the current filing.”
While he declined to comment on the recent developments, IBM Canada spokesperson Mike Boden did confirm IBM Canada is no longer a NexInniovations creditor either.Representatives for Tech Data Canada declined to comment on the specifics of the NexInnovations case, instead releasing a general statement reaffirming the distributor’s support for the channel.
“Our resellers operate in an extremely competitive marketplace, and we are committed to maintaining our role as an unbiased supplier dedicated to help them achieve their business goals,” said Tech Data in a statement. “Tech Data maintains its commitment to the channel and will continue its business relationships and operations with the utmost in ethics, integrity and respect for all our customers, large and small. To comment on specific customer performance is against Tech Data policy.”
It had earlier filed for and was granted creditor protection in August 2006 for a 30-day period, to allow the company time to restructure, citing financial difficulties. At that time Hubert Kelly, NexInnovations’ president and CEO, told CDN the company’s limitations on working capital were caused by average price points dropping by 15 to 20 per cent.
“The decision to do a CCAA was difficult and we explored and exhausted every option for several months. If you asked me about this approach a couple of weeks ago I would tell you it would not be the course of action,” Kelly said at the time.
