Dicker Data (ASX:DDR) share price on watch after announcing key acquisition

This IT distributor is making a key acquisition…

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The Dicker Data Ltd (ASX: DDR) share price will be one to watch next week.

This follows the announcement of a major acquisition after the market close on Friday.

What did Dicker Data announce?

This afternoon Dicker Data announced that it has entered into a binding agreement to acquire the Exeed Group business operating across Australia and New Zealand for $68 million.

According to the release, this transaction will see Dicker Data’s New Zealand business become the second largest IT distributor in that market with estimated revenue of over NZ$500 million for the combined entities.

The acquisition funding is supported by a cash advance facility from Westpac Banking Corp (ASX: WBC). And while there are a number of conditions to be satisfied before completion, Dicker Data expects to complete the transaction before the end of August.

The company expects the transaction to be earnings accretive for FY 2021.

What is Exeed?

The release explains that Exeed itself is already the second largest IT distributor in the New Zealand market and holds dominant market share across a number of the vendors it represents.

Management believes the acquisition of Exeed will provide Dicker Data NZ with the platform to rival the largest distributor in the New Zealand market. This is by using a mixture of unique local market knowledge and access to an increased range of world leading brands.

The Exeed business currently generates revenue of ~NZ$380 million across the ANZ market. This comprises NZ revenue of NZ$310 million and Australian revenue of NZ$70 million. Positively, the latter is from a vendor base that has no overlap with Dicker Data’s existing Australian vendors.

In respect to earnings, Exeed is expected to report normalised operating earnings of NZ$15 million in FY 2021.

Dicker Data’s Chairman and CEO, David Dicker, said: “After many attempts, over more years than I can count, we have finally got a deal done to acquire Exeed. This transaction will put us a very strong number 2 in NZ, with a platform for number 1. The combined companies are highly synergistic. The deal done will be all cash. A very satisfying outcome.”

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking Corporation. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Dicker Data Limited. The Motley Fool Australia owns shares of and has recommended Dicker Data Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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