IBM (NYSE:IBM) Sells Service Business Unit to Synnex (NYSE:SNX) for $ 505 Million
NEW YORK – IBM (NYSE:IBM) Global Services division reported last week that the company has sold its business process outsourcing services business to Synnex (NYSE:SNX) for $ 505 million. Analysts estimate that IBM’s CRM/BPO business had less than 2 percent share in a market that is believed to generate $ 55 billion per year in revenues; as such, IBM’s share was rather small.
However, the acquisition represents an opportunity for Synnex to reposition itself as a Top 10 provider in the market as the combined company will have close to 500 clients. According to Synnex representatives, the acquisition would book earnings per share by $ .55 within 12 months. Under the terms of the deal, Synnex will pay IBM $ 340 million in cash and another $ 75 million in stock once various regulators approve the agreement.
Synnex’ core business includes business process management and supply chain management and the company competes with Arrow Electronics (NYSE:ARW), Avnet (NYSE:AVT), Ingram Micro (NYSE:IM), and TechData (NASDAQ:TECD). Synnex also has a distribution agreement to resell Hewlett-Packard (NYSE:HP) to its customers, and it would not surprising if IBM and Synnex were to announce a distribution deal down the line.
For IBM, the sale does not represent a complete withdrawal from CRM/BPO; according to a company representative, the sale is part of a strategy to focus on BPO services and applications for finance and administration, procurement and supply chain management, human resources, and mortgage origination and servicing.
At the same time, IBM announced the acquisition of Israel-based CSL International, a provider of the virtualization management technology utilized in IBM’s zEnterprise System for an undisclosed amount. According to the company release, the acquisition will enhance IBM’s cloud capabilities.
The moves by IBM represent a rebalancing of their service businesses away from commodity-based services such as BPO/CRM into higher margin applications and cloud technologies. While IBM shares have been mostly range bound over the previous 52-week, the company is trading near a 5-year high, and it has outperformed the Dow in the same period. As such, the current rebalancing is coming at a time of relative strength and shares might start to regain traction in 2014.