How David Dicker plotted a billion-dollar distie

David Dicker said getting the $65.5 million of finance to acquire Express Data was a herculean task.

The blockbuster acquisition, revealed this morning, has been in the offing for 10 months, said the founder of ASX-listed distributor Dicker Data.

He said that inside Dicker Data, "Our internal code word for this deal was the deal of the century."

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Dicker Data paid $65.5 million for Express Data, 100 percent of which was debt funding through Westpac.

"Raising the money is a herculean task," Dicker told CRN. "People have no concept of how difficult it is in this country. It will go unsung but raising the money to do this thing was almost as big as the deal itself."

When Dicker broached the idea of the acquisition among key vendors, "they originally laughed and said, 'You guys wouldn't be able to raise the money'".

Banks were the same. "Most funders wouldn't even look at it without an equity component, but the problem with doing it with equity is it punishes the existing shareholders.

"I have a very clear strategy of how this deal plays out. It has an 18-month project window when various things have to be done, and part of that was doing that deal with 100 percent debt."

Only 6 percent of Dicker Data is currently traded on the ASX but this is going to change; Dicker said the company would issue shares within 18 months to pay off the $65.5 million debt to Westpac.

Under the deal, Express Data will relocate from Botany to Dicker Data's facilities in Kurnell, Sydney, which are being expanded to accommodate the influx of staff.

Bringing together the two major distributors will create a billion-dollar company to rival market leaders Ingram Micro and Synnex.

"It is hard to know exactly where those guys are, but when we get it combined, we have a realistic chance to be level pegging, then it is a matter of who performs better to see who pulls ahead," said David Dicker.

On the face of it, combining Dicker Data's $451 million turnover with Express Data's $798.5 million revenue would add up to combined sales in excess of $1.2 billion.

However, Express Data's financials are tied to its parent company, Dimension Data, with intricate accounting to avoid double counting sales.

Dicker said: "It is safe to say it will be over a billion, but the way they operated, they had very close link with Dimension Data and I think that skewed the revenue a bit.

Size is one advantage of the deal; complementary technology is another. Dicker said that the crossover of vendors is just 3 percent. "For practical purposes, it is zero."

Express Data's biggest vendor is Cisco, which accounts for almost 50 percent of turnover. Dicker Data's key vendor is HP.

The only shared vendor is Microsoft, following news just last week that Dicker had signed up as an authorised distributor of Microsoft OEM software as well as Full Packaged Products and Services.

David Dicker said his company had been trying to get Microsoft for years, and that the timing was coincidental. "The only real reason there is crossover is it took so long to get the Express Data deal done."

The acquisition also gives Dicker Data a $100 million foothold across the ditch. "We had been thinking about going to New Zealand but going there as a startup is pretty marginal. Being able to roll in those vendors we already have makes it much more attractive."

Next: DiData on departing distribution

DiData departs distribution

The advantages to Dicker Data go beyond the lack of vendor double-up, said Ross Cochrane, former CEO fo Express Data and now an executive of the global Dimension Data Group.

"If you look at the technology pillars that are addressed, Dicker Data is best known in the server, desktop, notebook and peripheral environment, while Express Data comes from a background of networking, security, data centre, communications and collaboration infrastructure, and software licensing and cloud."

Furthermore, Dicker Data is strong in SMB, while Express Data has a bigger presence in the enterprise space.

Cochrane told CRN that the prefered supplier arrangement between DiData and Express Data would remain in place under the new ownership.

He explained that the sale of Express Data fits with DiData's wider transformation as a services and cloud provider.

Express Data was the $5.8 billion integrator's only distribution business anywhere in the world.

"Over some years, there has been a focus from DiData on managed services. They have been investing heavily in that space, such as the NextiraOne acquisition in Europe last week, with 4,500 staff in managed services.

He also pointed to DiData's acquisition of Australian cloud player BlueFire and US-based Opsource.

In its most recent financial results lodged with ASIC, Express Data saw an 8 percent fall in sales and a 72.8 percent fall in income – signs, perhaps, that its focus was elsewhere.

Cochrane agreed that Express Data was not core to DiData's strategy around managed services and cloud, the two areas where the money is being spent.

"Express Data was only represented in Australia & New Zealand and, therefore, not a global business for DiData. As you pursue a strategy, you invest more and more around that strategy so it becomes harder to put investment and focus into things that are not aligned with that," he said.

As a distributor owned by an integrator, Express Data has always had to work against a perceived conflict from some quarters of the industry.

"We have operated as both an SI and a wholesale business for about 18 years and they have been operated at arm's length with separate systems and facilities. However, there are people who would perceive there could be a reluctance by certain integrators to compete with Dimension Data on one hand, then have an entity like Express Data that was owned by that competitor.

"This [deal] will remove that completely. It will be very clear: DiData in the integration, cloud services, managed services business and Dicker will be a standalone, separately owned entity, Australian-owned, Australian-listed IT solutions distribution specialist," said Cochrane.