Convergys (CVG 24.88, -0.49, -1.93%) and Synnex (SNX
98.77, -7.97, -7.47%) trade slightly lower today after confirming a deal
whereby SNX would acquire CVG in a cash and stock transaction with an
enterprise value of around $2.8 bln, including about $170 mln of Convergys
outstanding net debt. The deal is expected to close by the end of calendar
Under the terms of the agreement, Convergys shareholders will receive $13.25 per share in cash and 0.1193 shares of SYNNEX common stock for each Convergys common share they own, subject to a collar as described in the agreement.
The implied price of $26.50 per Convergys share represents a LTM EBITDA multiple of 8.4x (as of March 31, 2018) and an 18% premium to the company’s unaffected closing stock price on May 10, 2018, the last trading day prior to published market speculation regarding a potential transaction involving Convergys.
It is expected that Convergys will be combined with SYNNEX’s industry-leading CRM BPO subsidiary, Concentrix, with the aim of enhancing the capabilities and talent of both organizations.
According to SNX management, the deal is expected to increase the company’s revenues by $2.7 bln adjusted EBITDA pre-synergies by around $330 mln and accretive to non-GAAP EPS in the first year after close. SNX also anticipates significant cost synergies which we will realize over the first three years and about $50 mln per year for a total of $150 mln.
The deal comes about six months after former CEO Andrea Ayers announced her departure from the call center giant. Following Ayers’ departure reports detailed that a sale process had picked up. Convergys, which has seen waning revenues in the face of industry automation, has seen revenues decline on a year/year basis by 0.8%, 7.1%, 9.0%, and 7.4% in each of its last four fiscal periods.
Into last night’s deal confirmation, shares of CVG held gains of 8.0% YTD as investors were perhaps trading on the assumption that a deal was imminent.
Also last night SNX announced second quarter earnings and sales which beat market expectations. For the period, SNX reported earnings of $2.38 per share and revenue growth of 26.3% to $4.97 bln. Further, management issued underwhelming third quarter earnings guidance of $2.42-2.52 on a mostly in-line revenue outlook for the third quarter of $4.8-5.0 bln.
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