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SYNNEX Acquires Convergys to Create Growth Opportunities

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SYNNEX Corporation (SNX - Free Report) is expected to close the acquisition of Convergys, a global leader in customer experience outsourcing, today.

Under the terms of the deal, the total purchase price to be paid to Convergys shareholders, which includes both cash and equity, is nearly $2.2 billion. The transaction will also include net debt of about $270 million.                                             

Acquisition to Strengthen SYNNEX’s Global Leadership

After the completion of the acquisition, Convergys will be combined with SYNNEX’s CRM BPO subsidiary, Concentrix, which will enhance the capabilities of both the organizations. The company expects the rebranding of Convergys to Concentrix to be completed by end of January.

Reportedly, the merger will lead to the creation of the world’s second largest customer engagement services company with annual revenues of nearly $4.7 billion.

Talking about the acquisition, SYNNEX’s president and chief executive officer Dennis Polk was quoted saying that, "This transformational combination reinforces Concentrix' market position in business services, broadening our global scale and scope, and presents opportunities for revenue and profitability growth."

Financial Impact

On its last earnings call, the company issued guidance for the fourth quarter, considering the contribution of the acquisition for a period of less than two months.

For the fiscal fourth quarter, SYNNEX expects revenues to be in the range of $5.2-$5.4 billion, which is nearly flat compared with the figure reported in the year-ago quarter. Revenues from Convergys are expected to be around $425 million with an adjusted operating margin of approximately 10%.

We note that the company in order to improve the mix of business is replacing lower margin services with higher value-added opportunities. Although its strategy to move away from top customers to focus on more profitable businesses is an overhang on the top line, it is proving to be beneficial for the bottom line.

Management expects this transition to position the company well for the future. Moreover, the company expects revenues to move northward driven by the acquisition of Convergys.

Moreover, the company is also planning to cut down $150 million from the combined annual budget of both the companies.

Management expects the efficiencies and savings gained from this deal to not only help the company with positive financial returns but also enhance customer satisfaction and service.

Zacks Rank and Stocks to Consider

SYNNEX currently has a Zacks Rank #3 (Hold)

A few better-ranked stocks in the broader technology sector are Aspen Technology (AZPN - Free Report) , Veeva Systems (VEEV - Free Report) and j2 Global (JCOM - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Long-term earnings growth rate for Aspen, Veeva and j2 Global is currently projected to be 16.5%, 19.3% and 8% respectively.

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