Westcoast poised to buy

Distributor consolidation top of the agenda as UK-based Westcoast closes in on three Middle East acquisition targets. Deals are expected to close in the next few months according to Westcoast CEO Joe Hemani.

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By  Stuart Wilson Published  June 2, 2004

UK-based HP-focused distributor Westcoast is close to finalising several high-profile acquisitions to spearhead an ambitious expansion into the Middle East and Africa (MEA) IT channel. Westcoast CEO Joe Hemani, a well-known figure in European IT distribution circles, confirms: “It should take between six weeks and three months to close these deals. These deals will involve Westcoast taking a controlling equity stake in its targets. There are frustrations and delays when it comes to concluding these deals and price expectations can still be slightly high at times.” Privately held Westcoast’s MEA aspirations fit snugly with HP’s desire to reduce the number of distribution partners it works with and drive consolidation in the region. HP has been actively encouraging distributors in Western Europe to consider investing in the region, but publicly traded players have so far shied away. Hemani visited the region recently to assess potential targets and meet with senior executives. “The barriers to entry through acquisition are considerable and there is an element of frontier territory in the region especially when it comes to credit and finance,” continues Hemani. “That is a challenge for us but it is also a major deterrent to quoted companies entering the region. As a privately held company, we can adjust much more easily.” “What I am hoping to do is leverage some of the experience we have gained in Europe on how vendors want the channel to consolidate,” Hemani continues. “Westcoast can bring some of the richness of distribution skills and services that exist in Europe to the region and not make some of the mistakes that were made in the development of European channels. I have been telling those who will listen that the Middle East and Africa is the continent of the future and offers huge potential. Just looking at it from a pure economic perspective, GDP has been steadily rising in the region for the last five years.” Westcoast had attempted to drive further consolidation in Western Europe with the purchase of pan-European Germany-based distributor Actebis before the proposed deal hit snags late last year. Alastair Edwards, senior analyst at European IT channel consultancy Canalys, says: “Westcoast has been looking for international coverage for some time. It is a successful and profitable UK player but heavy reliance on HP means future growth and ongoing HP support is increasingly dependent on an international platform. The collapse of the Actebis purchase left few alternatives for expansion in Western Europe. The Middle East and Africa is attractive due to its emerging market status and potentially high growth levels.” With the exception of Tech Data, every other HP distributor in MEA must be considered a legitimate target for Westcoast. There is no shortage of companies ready to sell as local owners realise that IT distribution is an increasingly low-margin business. Expect authorised HP distributors in the region to be at the top of Westcoast's shopping list. “The region could take ten times as many boxes as it actually does at the moment due to restrictive credit and financing policies,” adds Hemani. “We can bring in innovative ways of doing business because we are a private company.” “Westcoast can expect HP to heavily back any international expansion move,” comments Edwards. “HP product accounts for an estimated 80% plus of Westcoast’s UK turnover. Westcoast operates a ‘deep and narrow’ model around HP and is frequently cited as one of HP’s most cost-effective volume distributors in Western Europe.” “The ability to fund any acquisitions should not be a problem for Westcoast,” adds Edwards. “The financing was already in place for the Actebis purchase, largely from Westcoast’s own cash reserves. Westcoast is profitable and cash generative on 2003 sales of around US$550m.” Westcoast also brings experience of managing a regional distribution alliance through the European Wholesale Group (EWG) in Western Europe. “Hemani will bring some valuable lessons with him from EWG,” concludes Edwards. “The most important lesson is that it is extremely difficult to manage an alliance of independent companies. You need a controlling stake in all the companies to avoid a clash of agendas and priorities.” Westcoast plans to buy companies that offer coverage across MEA. Distributors such as Jet and Tarsus could provide African coverage, while several Dubai-based authorised HP distributors, which rivals claim are keen to talk to potential buyers, would be receptive to offers.

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