Plans to create two companies in June put off until pandemic subsides
The rapidly spreading coronavirus pandemic is forcing IT distributor Synnex to delay the planned spin-off of its Concentrix business until after the global health crisis has lifted.
The Lowdown: During a conference call this week to discuss first-quarter financial numbers, Synnex President and CEO Dennis Polk and CFO Marshall Witt said the company’s focus during the COVID-19 outbreak must be on employees, customers, and the business itself rather than the spin-off, which was announced in January.
The Details: According to Witt, Synnex was ahead of schedule in its efforts to get the spin-off ready until the coronavirus situation escalated. The company in February had filed its Form 10 with the Securities and Exchange Commission (SEC) outlining the reasons for the spin-off and had made significant progress with banking partners to put the final financing in place. Synnex also had completed most of the internal administrative moves related to the plans.
With all of this in place, Synnex officials had planned to announce during the Q1 conference call that the spinoff would occur at the beginning of the third quarter, Witt said. Instead, the decision was to delay the move to an unscheduled time, dependent on the status of the pandemic.
The Impact: The plan still is to create two publicly traded companies, with Synnex Technology Solutions continuing as a distributor with about $19 billion in annual revenue. The other company, Concentrix, will provide business services, supporting more than 125 Global Fortune 2000 organizations around the world. Synnex bought Concentrix in 2006.
In the first quarter, Concentrix generated almost $1.2 billion in revenue, a 1% year-over-year increase, with income jumping 45% to $88.2 million. Concentrix President Chris Caldwell said during the call that the next two quarters will be difficult to predict given the coronavirus outbreak. More than 150,000 of the business’ 230,000 employees are under government-ordered movement restrictions that will last weeks, and about 70,000 can’t work at all. At the same time, while the impact on business will be temporary, such verticals as travel and transportation – which account for about $300 million in annual revenue for Concentrix – will be impacted by 75% and take many quarters to recover, Caldwell said.
The Buzz: “Our focus is fully on all Synnex and not the spin-off right now,” Polk said. “We were very pleased by the market reaction and support from our investors when we announced the transaction, a real validation of the Concentrix team and its business. The reality at this point is that we can’t bring this business to the market as an independent company when the focus would be on the virus pandemic, response, and recovery. We will bring Concentrix to the market when the focus will be back on the strategies and prospects of the business.”