“We have to do everything we can to scale”, boxxe CEO Phil Doye declared as he opened up on the rationale for its acquisition of Total Computers.
The £440m-revenue public sector reseller, which was on the verge of making the top 10 in IT Channel Oxygen’s Oxygen 250 report, today announced it has snapped up Kettering-based Total, a corporate-focused peer with £90m revenues.
The move comes 14 months after Doye took a minority stake in Total.
Talking to IT Channel Oxygen, Doye said an M&A move had become an increasingly attractive option for boxxe because it had “struggled to gain a real foothold in the corporate space”.
“In the four-and-a-half years I’ve been at boxxe, we’ve done pretty well growing in a lot of ways, but we’ve grown within our swim lane,” he explained.
“When you speak to people in the market who are also looking to acquire for scale, they’re all searching for resellers with revenues between £100m – £500m, and in reality there are very few buyable businesses in that range.
“You’ve got Total, CAE, Storm Technologies, Ultima, CCS Media, and XMA.
“Total was probably the best fit for the boxxe business. It gives us a real foothold in the corporate space, and with the acquisition of OverBright it has some higher-end consultancy skills which are going to be really useful for us.”
Trade buyers are queueing up for UK deals again, with Advania looking to add a sizeable VAR business in the UK, Trustmarque firmly on the M&A trail in 2024, Bechtle recently topping up its warchest and SCC in acquisition mode.
A good base to get to £1bn
Following the sale of the final majority stake in Kelway to CDW in 2015 (for $420m), Doye made a return to the channel in 2019 when he acquired York-based Microsoft partner boxxe, which ranked 12th in IT Channel Oxygen’s recently released Oxygen 250.
Public sector growth – including the successful renewal of a £291m Microsoft licensing deal with the MoD in July 2022 – helped boxxe boost revenues by a quarter to £363m in calendar 2022. Calendar 2023 revenues are set to hit roughly £440m, Doye said.
Although boxxe has seen strong growth in its defence, healthcare and central and local government strongholds, it must rapidly build scale in the corporate sector if it is to stay relevant to customers and challenge market giants such as Softcat and CDW, Doye asserted.
Oxygen 250 showed the UK’s top 10 resellers and MSPs generated 47% of the £26.9bn report total. The top 100 also outgrew those ranked from 101st to 250th.
“The big will keep getting bigger, and the distance between the big players and smaller ones is increasing,” Doye asserted.
“CDW and Softcat are able to churn out growth year on year and it gets harder to catch up with them.”
A recent Canalys survey pinpointing vendor certifications as the top buying criteria for customers when selecting resellers hammers home the need to bulk up, Doye said.
“Customers are being faced with a proliferation of vendors and a big player can just cover a wider range of partners, which makes it advantageous,” he said.
“When I was growing Kelway there were five to 10 really important vendor partner relationships that we needed to focus on, but now that has grown to at least 30; and each of them have rigorous partner programmes that require technical and sales certifications. For the smaller resellers, choosing who you have the resources to work with is a little like playing Whack-a-mole. You think you have your customers covered and then you get a spate of enquiries for a new vendor. For the big guys they have all lines covered, which is a huge advantage.”
“We feel like we’ve got to get to £1bn as soon as possible,” Doye added.
“It’s not that £1bn is particularly important in itself but more that it sets you apart from a scale perspective and you are no longer separated from the market leaders by a decimal point.
“We have to do everything we can to scale but at the same time make sure we do it profitably. Not only are the biggest players the biggest by revenue; they are also the most profitable. Size and the new mix of our customers and solutions will allow us to drive better operational efficiency and so from our perspective it should be a win-win.
“Our business model is not about niche specialisation in certain areas. It’s about having a broad portfolio of products and solutions that address the widest set of customers and their needs. The combined business is going to be somewhere around £625m in 2024, which gives us a really good base to start thinking about how we get to £1bn quickly.”
‘I understand intimately what Total can deliver for us’
Founded in 2003, Total Computers saw revenues contract by 3% to £89.7m in calendar 2022, with services revenues pogoing from £3.5m to £8.9m of the total on the back of its OverBright acquisition. It ranked 56th in the Oxygen 250.
As part of the deal, Total CEO Aidan Groom will take up a non-exec position at boxxe Group, with former OverBright CEO Kevin Goodall joining boxxe’s board alongside becoming Total’s new MD.
Boasting over 2,000 customers, Total’s breadth of customers across almost every vertical was also an attractive trait for Doye.
“They also have a strong public sector business, that has recently been boosted further by its success on the TePAS 2 framework” Doye added.
“They’ve got a good spread of public sector customers, with very little crossover of accounts, in areas we’re not so strong in. And they’ve also got things like Apple Authorised and Lenovo Platinum status which is a big opportunity for us in our customers.
“I’ve had the luxury of being an investor and a director for over a year, and I feel I understand intimately what that business can deliver for us.
“In some ways, Total is often seen as having a narrow product range that is perhaps a result of its success in workspace, where it is rightly seen as a market leader. It already does so much more than that and in combining forces with boxxe there is an opportunity to sell much more into those customers.
“One of the things they struggle with is their size. You’ve got customers that want to place more business with them but think financially they represent too much of a risk and so go to a CDW.
“The scale will really help them.”