Computex Acquired; SEC Filings Reveal MSP’s Financial Performance
Computex Technology Solutions has been up for sale since September 2021. Now, a buyer has emerged for the MSP and IT solutions provider. Take a closer look at SEC filings, and the Computex business journey reveals some challenging financial metrics that lag the MSP industry’s strong performance in 2021.
The official M&A announcement emerged on January 27, 2022 — stating that American Virtual Cloud Technologies (AVCT) sold Computex to Calian Group for $30 million. Calian expects Computex to generate about US$60 million in annual business — of which about US$24 million is annual recurring revenue (ARR), the buyer indicated.
This is technology M&A deal number 126 that ChannelE2E has covered so far in 2022. See more than 1,000 technology M&A deals for 2022, 2021 and 2020 listed here.
Computex Financial Performance (Source: AVCT SEC Filings)
Computex is highly respected in many portions of the MSP and IT services market. Indeed, the company was an AT&T Cybersecurity Growth Partner of the Year and Cisco Innovator of the Year, and received multiple Computer Reseller News honors.
Still, running the Computex business under AVCT’s ownership during the COVID-19 pandemic involved some major challenges. Indeed, an AVCT SEC filing (see page 26) from November 2021 offers a deeper look at Computex’s business performance for the nine months ended September 30, 2021. The data includes:
- Computex revenue of $69.6 million;
- gross profit of $20.9 million; and
- a loss from operations of $23.2 million.
Also of note from the same AVCT SEC filing (this time, page 33):
- Computex’s managed and professional services revenue in Q3 of 2021 was relatively flat compared to Q3 of 2020; margin decreased to 28.4 percent in Q3 of 2021, down from 34.8 percent in Q3 2020 — a 640-basis points decrease.
- AVCT attributed the Computex margin decrease with “increased investments in direct labor and software tools to support an increasing customer base as well as to the normalization of demand for certain services that were in higher demand in 2020 due to Covid-19.”
- Gross margin for Computex was 31.4% percent in Q3 of 2021, a 240-basis point increase from the 29.0 percent recorded in Q3 of 2020, “primarily as a result of improved margins on software and maintenance revenue and on hardware revenue.”
Meanwhile, the COVID-19 pandemic has pressured Computex’s supply chain. The AVCT’s SEC filing from November 2021 stated:
“As COVID-19 continues to negatively impact global supply chains, revenues and liquidity at our Computex subsidiary have been negatively impacted. The current computer chip and other component shortages, along with elongated product shipping transit times have caused an increase in product-related order backlog at Computex, increasing from a typical product-related order backlog of approximately $6.8 million as of December 31, 2020 to approximately $16.0 million as of September 30, 2021. Computex primarily sources its products from distributors who generally consider backlogged orders outstanding when computing the subsidiary’s credit limit usage. Hence, higher backlog orders negatively impact such credit limit usage and therefore negatively impact the subsidiary’s cash flows.”
About Former Computex Owner AVCT: The SPAC Strategy
Computex has had multiple owners in recent years. The timeline looks like this:
- March 2012: RGF Capital LLC and private equity firm Navigation Capital Partners acquired Computex Technology Solutions.
- April 2020: Pensare Acquisition Corp., a publicly-traded special purpose acquisition company (SPAC), acquired Computex Technology Solutions and changed the combined business name to American Virtual Cloud Technologies (AVCT). Computex continued under its brand name as an AVCT subsidiary.
- December 2020: AVCT acquired Kandy Communications, a Unified Communications as a Service (UCaaS) business, from Ribbon Communications.
AVCT’s ownership of Computex and Kandy has faced investor concern. Indeed, shares of AVCT have fallen roughly 86 percent from January 2021 through January 27, 2022, according to SeekingAlpha. The AVCT ownership journey included executive changes and boardroom discussions about what exactly to do with the Computex business. Among the dates to note:
- July 2021: An AVCT leadership shakeup arrived, when Navigation Capital Partners Managing Partner Darrell Mays was named CEO of AVCT. Former AVCT CEO Xavier Williams stepped down, and COO Michael Dennis exited the business around that time.
- September 2021: The company began to explore more cloud acquisitions while also disclosing plans to “explore strategic opportunities for its IT solutions business, including the planned divestiture of Computex. Proceeds from any potential sale transaction are expected to be used to further deleverage the balance sheet and provide working capital.”
New Ownership: Calian Group Acquires Computex
Fast forward to January 27, 2022. Calian Group, a Canadian IT solutions providers, has confirmed plans to acquire Computex for $30 million from AVCT.
In a prepared statement about the deal, Sacha Gera, president of IT and Cyber Solutions at Calian, said:
“Calian is moving towards a full-service model that will provide end-to-end IT and cyber solutions for our customers. We’re excited about joining forces with Computex to provide an even stronger offering to our combined customer base and the market through an expanded sales distribution network. With this acquisition, we expect the IT and Cyber Solutions segment of Calian will drive a combined CAD$175M in annual revenue.”
Added Kevin Ford, Calian CEO:
“This potential acquisition will drive further innovation and customer diversification, adding 1,100 customers in healthcare, oil and gas and manufacturing, with cross sell opportunities across our business units. In support of our growth objectives to be a one-billion-dollar global company, this acquisition facilitates further expansion in the US market.”
Calian anticipates deal to be finalized in the first calendar quarter of 2022. Completion of the deal is subject to regulatory approvals and other customary closing conditions, the buyer said.