As a new dawn breaks in Kiwi distribution, what’s next for Dicker Data?

The new-look Dicker Data will operate aligned to tried and tested metrics of success in New Zealand, mirroring the model of growth in Australia with a strong focus on people, localisation and execution.

As the ink dries on a landmark A$68 million acquisition of Exeed — first revealed by Reseller News — the distribution giant is favouring familiarity over flamboyance in the months ahead, embarking on integration plans with a strong sense of deja vu.

Shaped by the successful buyout of Express Data — finalised for a similar price tag of A$65.5 million in April 2014 — there will be no grandiose claims of market domination post-transaction, rather a quiet confidence that the proof will be in the process.

The blockbuster move will result in Dicker Data assuming second spot within an increasingly competitive and consolidated Kiwi supply chain, armed with the platform to "rival the largest distributor" — Ingram Micro — in the market.

Yet for David Dicker — chairman and CEO of Dicker Data — that is where the competition stops.

"We've never attacked Ingram and we wouldn't be stupid enough to even try," confirmed Dicker, when speaking exclusively to Reseller News. "But we've certainly weathered numerous price wars with them.

"Now this is going back to before most of the industry was even born but I remember the first year we had Compaq, we didn’t make a dollar during the first nine months. We had to fight them head-on in a price war but those days are over and everyone is a little more sensible."

In stepping away from competitive predictions, Dicker said the creation of a second ranked distribution platform guarantees nothing in the way of market share. Instead, energy will focus on executing a strategy centred around running the combined business in New Zealand aligned to the same metrics and set-up as Australia, underpinned by standout personnel in both companies.

"Our team is up for it which is the main thing," he said. 'We'll just do our best and see where everything falls, like we always do because I don't care about chasing number one.

"What I like about business compared to sport is that in sport, if you don't win then you lose. Whereas in business, you don't have that concept, you don't actually have to win to get a satisfying outcome and I find that a much more attractive philosophy."

The concept of 'targeting Ingram' — as perhaps the media would like to phrase it — is simply a non-starter for Dicker.

"If in due course we pull ahead of Ingram then that'll be nice but it's not really a focus," he added. "Our focus is to run the company how we run the company, service our customers and vendors and execute correctly. That's what is important."

In taking control of Auckland-based Exeed — viewed by many as a model of channel success in the Kiwi supply chain — Dicker has combined the capabilities of local powerhouses on both sides of the Tasman, squaring up against global competitors in the process.

As a locally owned and operated distributor in New Zealand, Dicker acknowledged that Exeed shares many cultural similarities with the Sydney-based business he founded in 1978, specifically the distributor's ability to "outpace all foreign rivals".

The acquisition once again draws focus to the local vs. global dynamic playing out in the Kiwi market. In the local corner, Exeed, Duo — acquired by Sektor in mid-2019 — Soft Solutions, Chillisoft and Telegistics, plus Australian-owned Dicker Data, Rhipe — snapped by Crayon in July — and Nextgen. In the opposite corner, global heavyweights Ingram Micro, Westcon-Comstor, Synnex, Arrow, Exclusive Networks and Tech Data.

"To be honest, I don't even know how they operate because I've obviously never worked for any of the global players or a big company," Dicker stated. "Even people who have joined us from Ingram, it's never something that we have even discussed.

"My approach has always been to formulate a strategy and structure, then execute against that and see where you land. That is a better approach that seeing what your competitor is doing and trying to figure out what to do from that."

As history shows, Dicker is an entrepreneur at heart who has built a distribution empire on original thinking and simplified problem solving. No organisation can survive — never mind thrive — for more than 40 years by looking over the competitive fence.

"I have no idea how Ingram operates," he confirmed. "I guess they would probably have more of a rigid reporting structure with all strings pulled from the global office — that is a gigantic mistake in my opinion because you can run a big company without having to be that way. But I actually don't know."

Why Exeed?

Ask any New Zealander to cite the only certainties in life and chances are, the top three would rank as death, taxes and the All Blacks taking home the Bledisloe Cup.

Transfer such line of questioning to distribution and Dicker Data acquiring Exeed would no doubt generate a similar response given the relentless pursuit from Dicker and his team — "after many attempts, over more years than I can count, we have finally got a deal done to acquire Exeed."

With Dicker making no secret of his desire to engineer such a deal, this acquisition has always been on the table. Subject to years of industry speculation — sometimes credible, other times nothing more than misinformed rumours — completion of this transaction was a case of when, rather than if.

"We've always considered Exeed as too expensive in the past," Dicker acknowledged. "Even though the valuation then was much less dollars than what we have paid, it was a much smaller company and we never found the value proposition justifiable at the time.

"But I guess Tony Butler decided that now was the time to do it. None of us are getting any younger and sometimes you get to the stage when you eventually think that you might as well take the money and leave the game."

Founded in 2002, Exeed currently operates as the second largest distributor in New Zealand, with revenues of approximately NZD $380 million and full-year normalised EBITDA earnings expected to total roughly $15 million in FY21. In addition to NZD $310 million of revenue in the Kiwi market, the acquisition will also provide access to $70 million revenue in Australia.

Going forward, Justin Tye will be at the helm of the combined entity which houses an expanded arsenal of market-leading vendors which includes Apple, HP, Hewlett Packard Enterprise and Microsoft across commercial and retail sectors, plus exclusive local distributorships with Motorola, Ruckus and Webroot among others.

Specific to HP — cited as the most coveted of vendors — patience has paid off for Dicker in New Zealand, more than six years on from when the distributor officially kicked Kiwi operations into gear post-acquisition of Express Data.

"We don't have HP here and that isn't great given HP is our biggest customer in Australia," said Dicker, when speaking to Reseller News from Auckland headquarters in May 2015. "We should have HP in New Zealand but we don't... we'll have to work on that and it's a long process."

Fast forward to 2021 and Dicker finally has HP — recognised as a key contributing factor in finalising the acquisition.

"Nothing has changed in terms of 'why Exeed?' but I think it has in detail," Dicker explained. "They've obviously gotten much larger as a business which is always attractive.

"These deals are basically centred around what the aggregated sales number is going to be, that's where everything stems from. They've got the highest sales numbers they've ever had but there's also lots of other potential upsides to this deal.”

Lucrative vendor portfolios aside, the addition of Exeed's strong retail base could also add another string to the distributor's bow — albeit an unfamiliar one.

"This is attractive because we've never even attempted to do retail in Australia," Dicker said. "I'm not saying that we couldn't do it but we have never tried.

"This will help provide insight as to whether there's a possibility that we might make this work in Australia but I honestly don't know if the approach is the same as New Zealand. At least we're going to receive some good information from people who have been able to operate this well so I guess the answer is that we'll find out."

In short, Dicker accepted that while retail provides an "added bonus" to the deal, the distributor will still focus the bulk of company efforts on the commercial market.

"Selling to commercial customers is much easier than selling to consumers and much easier to justify a sale," he noted. "There's a million reasons why it's preferable but at the same time, you don't always want to go down the path of 'well I don't like this so I'm not going to do it'. Exeed has made retail work and therefore I see the value."

The closing of the deal comes four years after Cisco overhauled its distribution strategy in New Zealand, parting company with Dicker Data and Ingram Micro in an industry-defining round of channel changes.

As exclusively revealed by Reseller News at the time, Westcon-Comstor was appointed as the sole distributor for the tech giant locally, following a detailed six month tender process. Labelled as the biggest change to Cisco's go-to-market strategy across the country for over a decade, the deal sent shockwaves across the country.

Dicker described the move as "very disappointing" at the time of the announcement but promised to "respond aggressively" through the addition of tier-one vendors.

"Our sales number in New Zealand is more or less back to where we were when we had Cisco," Dicker clarified, with Kiwi revenue increasing by A$27 million to A$143 million in 2020. "We've basically papered over that crack but we haven't given up on getting Cisco back and I'm sure we will get it back — I just don't know how long it will take."

With approximately $500 million in combined revenue for the new-look entity, Dicker once again cited this as the "important number" to consider, a number which essentially puts the business in striking distance of Ingram irrespective of competitive tendencies.

"Much like with the Express Data deal, when you move up and you're playing in the same space as an Ingram, everything is different," he said. "Even though you're the same company, have the same people and are the same in a lot of ways, the shift just changes the dynamic and we're expecting the same outcome with Exeed."

Channel consolidation — acquire or be acquired?

From a consolidation standpoint, mergers and acquisition (M&A) activity in New Zealand can be condensed into a core selection of impactful local deals, most notably Ingram Micro's buyout of Tech Pacific in 2004, Westcon Group taking control of Datastor in 2009 and Exeed snapping up the distribution arm of Renaissance in 2012.

Most recently, Sektor acquired Duo Group in mid-2019, Ingram Micro bought Connector Systems in 2016 and Dicker Data entered the Kiwi market following the purchase of Express Data in 2014.

"Consolidation always happens," Dicker added. "Looking back to 1978 when we started and the first IBM PC came to market, there must have been 10,000 dealers in Sydney at the time.

"We imported microcomputers from the US and there would have been at least 15 or 20 vendors that were represented in the Australian market with viable products. But the market always consolidates and no doubt it'll probably consolidate further from here."

Referencing the recent Tech Data and Synnex $7.2 billion mega-merger, Dicker observed that each channel usually settles down to three major players — the leader out in front, followed by a second who is usually slightly ahead of the third and then, a large gap to the rest.

"Markets can't support too many players and vendors don't want to support them either," he cautioned. "Take the car industry as a case in point. In the US, the market went from approximately 100 manufacturers in 1910 to three by the 1970s. That's the way markets go."

Despite the company's most recent activity aligned to purchasing rather than selling, Dicker acknowledged that two strategies exist for the business going forward — acquire or be acquired.

"We're not actively trying to be acquired but when you're a public company, if someone comes along with the right money and offer then you just have to recommend the deal," he noted. "If the dynamic works then you can't reject it."

But on the flip side, Dicker confirmed that no such deal is on the table which in turn makes future acquisitions more likely.

"The real issue is always funding," he advised. "We could have bought Ingram if we could have raised the money. I had a deal to buy Tech Data about three or four years ago for $3 billion but of course, no-one in Australia would lend me $3 billion. I think Tech Data was trading at 30 and now they're somewhere around 140 so the plan would have worked — it would have been like the Express Data deal but made bigger.

"If I could secure good funding tomorrow we'd be there right away. Alternatively, you're always thinking if you can persuade the global players to carve off their Asian business perhaps. I'm always looking around the market to see if possibilities exist."

To provide perspective on funding, Dicker said a plan was originally in place to complete the Exeed deal with all shares, before converting to cash.

"The argument was that because we're a public company it's essentially free money which is one of the single biggest benefits of being listed which you can't do as a private business," he explained. "That was our original idea but there was too much back-and-forth so eventually I just said forget it, we'll deal with cash.

"One of the most important aspects of this transaction was that we were able to raise the entire amount of money from Westpac which I'm very satisfied about because we've never been able to do that in the past."

The business raised $68 million unsecured at a solid rate which according to Dicker, proved how much stronger the company is today compared to five years ago, "completely vindicating" the strategy to become a public company during early 2011.

"Money is essentially just a tool which allows you to do things," he added. "The biggest negative in our economy is that it's so difficult to raise money. There's so many people out there with great ideas that are never going to go anywhere because we don't gave a strong capital market or a viable way of raising funds. It's better than before and I'm not saying it's terrible because it used to be appalling.”