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The Deal: Synnex Nabs IBM Customer Care Business

THE DEAL (The Deal) -- Outsourcing technology company Synnex (SNX - Get Report) announced Tuesday, Sept. 10, that its Concentrix subsidiary acquired the worldwide customer care service business of IBM (IBM - Get Report) for $505 million.

Terms of the deal call for a $430 million cash payment and $75 million in Synnex common stock to Armonk, N.Y.-based IBM. The acquisition should add about $120 million in Ebitda and about 55 cents in fully diluted earnings per share excluding one-time charges and integration costs in the first year after the deal's closing.

The deal values the target at about 4.2 times EBITDA. 

"Concentrix will become one of the world's leading customer relations management BPO companies with expected combined revenues of $1.4 billion and about 45,000 employees worldwide," said Synnex CEO Kevin M. Murai on a conference call held after the market close on Tuesday. "It will boast a high-quality customer portfolio with recurring revenues from IBM's blue-chip client base that are well diversified across industry verticals and geographies." 

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Fremont, Calif.-based Synnex bought Concentrix in September 2006 for undisclosed terms. The target is a marketing company that provides call center, database analysis and printing services to the transportation, publishing and banking industries. It has a revenue run-rate at over $200 million, Murai said on the call. 

The IBM business is considered the larger entity and the Concentrix operations will be folded into it, while retaining its brand name.

Concentrix president Chris Caldwell will lead the target with senior management coming across from IBM, and from Concentrix staff, executives said on the call.

"We'll be delivering services out of about 19 different countries," Cadwell said on the call. "Of those 19 different countries, we currently operate in 10 of them. Of the nine were picking up most are in geographies that we have been looking to grow into and have looked at other opportunities there."

Caldwell said IBM has historically focused on large corporate customers and that Concentrix will look to push the target into serving more of the middle market. The transaction also includes a multiyear strategic partnership between Concentrix and IBM as new products are released and for business processing services. 

The combined company will serve clients in the automotive, banking, computer services, government, insurance, IT, telecom, utilities sectors. Concentrix will gain an increased presence in serving the banking, insurance and tech space in particular. 

"[These are the] three kinds of verticals that we see being able to really exploit as these two businesses come together," Caldwell said. 

Eric L. Schiele at Cravath, Swaine & Moore is lead counsel for IBM, while Allison Leopold Tilley at Pillsbury Winthrop Shaw Pittman is lead counsel for Synnex on deal. 

Synnex shares rose about $9.99, or 20.8%, to $57.96 on Wednesday afternoon. IBM shares rose $3.87, or 2%, to $190.47.

Written by Thomas Zadvydas.

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