01 April 2021

US acquisition – key learnings from overseas growth

Expanding overseas may be daunting, but the rewards can be impressive. Tony Conophy, Group Finance Director at Computacenter, and Jim Tindol, Vice President, Finance, Computacenter US, share their experience of the US market and their key learnings.

Reason for expansion and how it evolved

With an increasing number of its global clients looking to Computacenter to meet both their IT product and service needs in the US, the rationale for expanding physically into the US was growing. “If you can’t supply those customers in the US, you really can’t provide the service to the customers in Europe,” explains Tony. “Growing the product resale business organically is tough because you need to have systems in the country, you need to have customers, and you need to have relationships with the vendors in the country.”

As a result, in 2018, Computacenter acquired US-based Fusion Storm, adding a further acquisition in 2020. For Tony, the strategy was both aggressive and defensive. “The reality is that we wanted to expand into the US because it’s the largest marketplace in the world for IT services and kit, and most of the vendors are US-oriented as well, so you’re not really as significant with those vendors unless you’re in the US.

“But it’s also defensive, because there are businesses like us in the US who have spotted the same trend with their customers having operations in EMEA and who are feeling pressure from their US customers to supply their subsidiaries in Europe.”

We often think of the US as one state, but it absolutely is not, so understanding the different parts of it, and how it works and how the culture is different state to state, is important.

Tony Conophy, Group Finance Director at Computacenter

Key learnings

1. Choose the right model – “Because of the need to have scale and be able to buy at a certain level of discount and have relationships with vendors, establishing organically would’ve been too hard, so acquiring an appropriate business was a better option,” says Tony. “If we’d started from scratch, it would probably have taken us 10 years to get to the position we wanted to, whereas buying something already there and established meant we could achieve that pretty quickly.”

2. Read and understand your market to get your timing right – “Change can happen quickly,” says Tony, “and if you don’t respond, you become less relevant to your customers and eventually irrelevant to them.”

3. Think carefully about your strategy and ability to see it through – “Understand why you want to go into a particular market and what you want to get out of it,” he says. “And also check that you have the management capacity and bandwidth to see it through, to get and stay close to the business.”

4. Set clear criteria for acquisition – “We didn’t just want to respond to people deciding to sell their business, so we searched proactively for a business that dealt with large customers and was mainly based around the data centre part of the products we sell,” explains Tony.

5. Find a business that fits your culture – “As a people business, we ultimately need to operate in a consistent way across the globe for those international customers,” says Tony. “Therefore, culture and acceptance of change is important, so we had to choose somebody that was the right profile, the right stage in its development, and the right culture to fit with ours.”

6. In the US, all states are not the same – “We often think of the US as one state, but it absolutely is not, so understanding the different parts of it, and how it works and how the culture is different state to state, is important,” says Tony.
“We are in essence 50 different countries with one country on top of that,” adds Jim. “Within that, there are two areas that will impact your business massively. Firstly, you’ve got to deal with our federal taxes from an income tax perspective, and then all 50 states’ income taxes. And then all 50 states have different sales tax rules and may treat the same item 50 different ways. Secondly, employee benefits; generally we’re not as centralised as in Europe, and the government doesn’t provide as many of the benefits here, and rights can differ dramatically state by state.”

7. Recognise the practical challenges – “There are different time zones just across the US, let alone an ocean between Europe and the US,” says Jim, “so we had to figure out how we were going to operate and fold ourselves into Group operations and still accommodate those. There were also disparities and complexities of sharing data from different operating systems and consolidating those takes time. In the interim, we’ve had to get creative.”

8. Establish processes early on – “Thinking through how to establish processes to ensure sales are carried out in an orderly fashion is key,” says Jim. “As soon as the deal closed, the European sales team could smell opportunity and they immediately pursued it, so having those processes upfront was key.”

9. Invest time in bringing the businesses together – “Right after the acquisition, there was a big roadshow where the Group CEO toured the US and met the teams,” explains Jim. “Our senior leadership and sales teams then went over to the UK and were integrated into the Computacenter family. It really did feel immediately like the right fit. It was as seamless as it could be, and they did a great job in how aggressively they worked to make us feel like part of the Group from day one.”

10. Tailor your due diligence – “The big thing that UK or European companies are always worried about is the strength of litigation in the US compared to Europe,” remarks Tony. “We spent a lot of time and effort understanding the legal risks. Those risks were disclosed early on in the process and we structured the share purchase agreement to deal with those risks, putting money aside to pay for those risks as they materialised.”

11. Trust your gut – “Do your homework and good due diligence. Make the right decision. If it doesn’t feel right, don’t do it. Once it does feel right though, don’t take too long,” he says.

12. Choose your advisors carefully – “Given the perception of US legal risks, we used a large firm called Linklaters to provide comfort,” says Tony. “KPMG helped us understand the financial reporting, the financial make-up and the financial risks in the business. Because of the scale of the deal, our bank facility was syndicated, and HSBC’s global footprint has helped support our overseas business.”

Benefits of overseas expansion

“Being close to our customers has definitely helped us to grow,” says Tony. “There are European customers today that we would have lost share in, if we hadn’t done the US acquisition. We’ve also won some outsourcing bids separately with US based customers, so we’re starting to become (and being seen by investors, analysts and customers) more of what you would call a global value-added reseller.”

For Fusion Storm, there have also been benefits: “Our larger customers were looking to expand their footprint in Europe and they were looking for us to help them do that, and we had established entities to make that happen, but it was difficult compared to having an established in country location,” says Jim. “So the acquisition was timely from that perspective, because we felt that we would be in danger if we couldn’t help expand our customers’ overseas operations more quickly.

“As a business model running on thin margins, we just did not have the ability to make some investments that we really would have needed. So being able to become part of a much larger established organisation, opened a lot of doors for us.”

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