Siltek, holding company of distribution firm SDD, has suspended trade on its share and further delayed its financial results as it struggles to recapitalise its flailing operations.
Decreasing margins, scarce cash and a severely slumped market has left SDD, which accounts for 60% of Siltek's revenues, looking for a knight in shining armour with a large chequebook.
In an earlier interview with ITWeb, Siltek CEO Dave Lello explained the difficulties faced by the company: "The cost of the money we are putting into distribution is about six times that of a similar business in Europe and that money has to come from somewhere. The question everybody is asking is if Siltek in its current state has the money to finance a business that is so cash-negative."
Marlene Heymans, Vantage Investment Solutions IT analyst, believes the only assistance will come from banks that will turn Siltek's debt into equity.
"[Siltek management] looked overseas for finance and was unsuccessful. Now it's up to the local banks, which will have to take the initiative to find a solution for Siltek," says Heymans.
As the industry and investor community await a definitive forward strategy from Siltek, a ripple effect of uncertainty is spreading as to the viability of the rest of the local channel.
Malcolm Auton, senior manager at Credit Guarantee, which underwrites 80% of fellow distributor Tarsus Technologies, says the troubles experienced by Siltek and the rest of the market have already led to a reassessment of the risk involved in underwriting.
"There is huge uncertainty in underwriting some of the bigger clients; at the moment there is very little to class blue chip," says Auton.
"Dimension Data and its ilk haven't done us any favours. We've had to reassess our risks based on results and from July we have been hearing profit warnings almost on a daily basis."
Auton believes Siltek made the mistake of ignoring core business and is now paying the price.
"They took their eye off the ball. They bought companies that covered all aspects of the industry and not just the channel. They made some poor choices and even though they have sold some of the acquisitions, they are still left with little cash," he says.
He also believes the banks will have to become involved, if they haven't already.
Auton says there is still a place for the middleman, as performances from Tarsus and Mustek have been heartening.
Leo Baxter, CEO of Tarsus holding company MB Technologies, said recently that Trasus had reduced its debtor days to 37 and stock holding days to 15.
Auton says Tarsus will be the natural alternative to SDD, should a fast solution not be found, but he doubts whether any of the large international vendors will throw all their eggs into one basket.
However, Heymans says even though MB Technologies will stand to gain the most in the short-term, it won't be long before it faces the same problems as its competitor.
It remains to be seen if the principals will go direct, but Auton believes there is too little infrastructure in the market to support a direct model, and the larger players may not have the appetite for this, especially with the weak currency.
Heymans concurs, but says vendors may opt for a direct approach in the short-term and then re-asses the distributor options.
"The fact that the biggest player in the distribution chain is facing demise is indicative that there is little space for middlemen in our market," concludes Heymans.
Siltek, currently trading in a closed period, says results will be delayed until its capital restructuring plan has been finalised. A company spokesperson says word is expected from management later this afternoon.
Share
