Private equity fund poised to take Redington stake

Regional IT distribution giant Redington is in advanced negotiations to sell a stake in the company to a private equity investor. The investment, which comes approximately one year after Taiwanese distribution giant Synnex picked up a 36% stake in Redington for US$24m, will set a benchmark valuation for Redington’s planned IPO in India later this year.

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By  Stuart Wilson Published  March 7, 2006

Regional IT distribution giant Redington is in advanced negotiations to sell a stake in the company to a private equity investor. The investment, which comes approximately one year after Taiwanese distribution giant Synnex picked up a 36% stake in Redington for US$24m, will set a benchmark valuation for Redington’s planned IPO in India later this year. “The discussion with the private equity investor is very active and we are driving this forward,” explained Raj Shankar, director at Redington. “This investor has valued the company at almost twice the value that Synnex invested at. The private equity investor has done its due diligence and came up with this valuation.” “Because of the non disclosure agreement that we have signed with the private equity investor, and since the discussion is still ongoing, it would be inappropriate for me to disclose a figure,” Shankar added. “One of the key reasons we are offering a small share to a prominent private equity investor is to establish a benchmark valuation ahead of the IPO. The investor’s stake will be less than 10% and we hope to go for a stock market listing in India at some point before the end of 2006.” Fast-growing Redington expanded its operations in the Middle East and Africa (MEA) at lightning pace during 2005. The company, which now employs some 240 staff across MEA, expects to post sales of US$450m in the region for the financial year ending March 2006 — a rise of almost 40% from the previous year. Redington has carved out an impressive reputation in the volume distribution arena and now hopes to emulate its success in the value distribution space as well. “The one area in the volume space that we do not really cover is components and you will definitely see some developments in that direction during 2006,” added Shankar. “However, when you look at the value space, that is what we are very keen on and plan to nurture. We are actively working on this now and in the next few years you will see a significant portion of our business coming from this space — from networking products through to software and even enterprise solutions.” Now serving a total reseller base of approximately 1,600 customers in MEA, Redington has invested heavily in building up in-country operations across the region. While Shankar freely admits that it takes several years before these operations start to recoup the original upfront investment, he firmly believes that this is the model that will become the norm as the regional IT channel matures. In addition to developing its in-country distribution model even further in 2006, Redington is also keen to expand its vendor portfolio in MEA. “We definitely want to increase the number of vendors and brands in our portfolio,” declared Shankar. “Today that is one area where we are limited and restricted — be it in the volume or the value space. We will also look at the telecommunications sector as a new vertical focus for the year ahead.” Redington recently signed an agreement to distribute Nokia products in Nigeria as the distributor looks to expand its business activities in Africa even further. “Today, in the whole of sub-Saharan Africa, we only have two countries where we have a direct presence: Kenya and Nigeria,” added Shankar. “If we want to develop we need more in-country presence in Africa, but we will not be able to completely emulate the business model that we have in Saudi Arabia and Egypt for example because of the way that the supply chain works.”

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