As a new dawn breaks in Kiwi distribution, what’s next for Dicker Data?

As a new dawn breaks in Kiwi distribution, what’s next for Dicker Data?

Distribution giant favouring familiarity over flamboyance following landmark A$68 million acquisition of Exeed, embarking on integration plans with a strong sense of déjà vu.

David Dicker (Dicker Data)

David Dicker (Dicker Data)

Credit: Dicker Data

“These deals are basically centred around what the aggregated sales number is going to be, that’s where everything stems from. They’ve got the highest sales numbers they’ve ever had but there’s also lots of other potential upsides to this deal."

Lucrative vendor portfolios aside, the addition of Exeed’s strong retail base could also add another string to the distributor’s bow -- albeit an unfamiliar one.

“This is attractive because we’ve never even attempted to do retail in Australia,” Dicker said. “I’m not saying that we couldn’t do it but we have never tried.

“This will help provide insight as to whether there’s a possibility that we might make this work in Australia but I honestly don’t know if the approach is the same as New Zealand. At least we’re going to receive some good information from people who have been able to operate this well so I guess the answer is that we’ll find out.”

In short, Dicker accepted that while retail provides an “added bonus” to the deal, the distributor will still focus the bulk of company efforts on the commercial market.

“Selling to commercial customers is much easier than selling to consumers and much easier to justify a sale,” he noted. “There’s a million reasons why it’s preferable but at the same time, you don’t always want to go down the path of ‘well I don’t like this so I’m not going to do it’. Exeed has made retail work and therefore I see the value.”

The closing of the deal comes four years after Cisco overhauled its distribution strategy in New Zealand, parting company with Dicker Data and Ingram Micro in an industry-defining round of channel changes.

As exclusively revealed by Reseller News at the time, Westcon-Comstor was appointed as the sole distributor for the tech giant locally, following a detailed six month tender process. Labelled as the biggest change to Cisco’s go-to-market strategy across the country for over a decade, the deal sent shockwaves across the country.

Dicker described the move as “very disappointing” at the time of the announcement but promised to “respond aggressively” through the addition of tier-one vendors.

“Our sales number in New Zealand is more or less back to where we were when we had Cisco,” Dicker clarified, with Kiwi revenue increasing by A$27 million to A$143 million in 2020. “We’ve basically papered over that crack but we haven’t given up on getting Cisco back and I’m sure we will get it back -- I just don’t know how long it will take.”

With approximately $500 million in combined revenue for the new-look entity, Dicker once again cited this as the “important number” to consider, a number which essentially puts the business in striking distance of Ingram irrespective of competitive tendencies.

“Much like with the Express Data deal, when you move up and you’re playing in the same space as an Ingram, everything is different,” he said. “Even though you’re the same company, have the same people and are the same in a lot of ways, the shift just changes the dynamic and we’re expecting the same outcome with Exeed.”

Channel consolidation -- acquire or be acquired?

From a consolidation standpoint, mergers and acquisition (M&A) activity in New Zealand can be condensed into a core selection of impactful local deals, most notably Ingram Micro’s buyout of Tech Pacific in 2004, Westcon Group taking control of Datastor in 2009 and Exeed snapping up the distribution arm of Renaissance in 2012.

Most recently, Sektor acquired Duo Group in mid-2019, Ingram Micro bought Connector Systems in 2016 and Dicker Data entered the Kiwi market following the purchase of Express Data in 2014.

“Consolidation always happens,” Dicker added. “Looking back to 1978 when we started and the first IBM PC came to market, there must have been 10,000 dealers in Sydney at the time.

“We imported microcomputers from the US and there would have been at least 15 or 20 vendors that were represented in the Australian market with viable products. But the market always consolidates and no doubt it’ll probably consolidate further from here.”

Referencing the recent Tech Data and Synnex $7.2 billion mega-merger, Dicker observed that each channel usually settles down to three major players -- the leader out in front, followed by a second who is usually slightly ahead of the third and then, a large gap to the rest.

“Markets can’t support too many players and vendors don’t want to support them either,” he cautioned. “Take the car industry as a case in point. In the US, the market went from approximately 100 manufacturers in 1910 to three by the 1970s. That’s the way markets go.”

Despite the company’s most recent activity aligned to purchasing rather than selling, Dicker acknowledged that two strategies exist for the business going forward -- acquire or be acquired.

“We’re not actively trying to be acquired but when you’re a public company, if someone comes along with the right money and offer then you just have to recommend the deal,” he noted. “If the dynamic works then you can’t reject it.”

But on the flip side, Dicker confirmed that no such deal is on the table which in turn makes future acquisitions more likely.

“The real issue is always funding,” he advised. “We could have bought Ingram if we could have raised the money. I had a deal to buy Tech Data about three or four years ago for $3 billion but of course, no-one in Australia would lend me $3 billion. I think Tech Data was trading at 30 and now they’re somewhere around 140 so the plan would have worked -- it would have been like the Express Data deal but made bigger.

“If I could secure good funding tomorrow we’d be there right away. Alternatively, you’re always thinking if you can persuade the global players to carve off their Asian business perhaps. I’m always looking around the market to see if possibilities exist.”

To provide perspective on funding, Dicker said a plan was originally in place to complete the Exeed deal with all shares, before converting to cash.

“The argument was that because we’re a public company it’s essentially free money which is one of the single biggest benefits of being listed which you can’t do as a private business,” he explained. “That was our original idea but there was too much back-and-forth so eventually I just said forget it, we’ll deal with cash.

“One of the most important aspects of this transaction was that we were able to raise the entire amount of money from Westpac which I’m very satisfied about because we’ve never been able to do that in the past.”

The business raised $68 million unsecured at a solid rate which according to Dicker, proved how much stronger the company is today compared to five years ago, “completely vindicating” the strategy to become a public company during early 2011.

“Money is essentially just a tool which allows you to do things,” he added. “The biggest negative in our economy is that it’s so difficult to raise money. There’s so many people out there with great ideas that are never going to go anywhere because we don’t gave a strong capital market or a viable way of raising funds. It’s better than before and I’m not saying it’s terrible because it used to be appalling."

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