Workgroup has been bought out of Siltek`s ruins and is to be up and running by December if management can renegotiate contracts with major software vendors.
The business has been bought from Siltek`s liquidators by a consortium of investors including former Siltek CEO Dave Lello. Hardware supplier Pinnacle Micro and engineering firm the IMF group will hold 70% of the new business; management will hold 20% and the remaining 10% has been allocated for performance businesses.
Lello says the deal has more in common with starting up a new business than with a management buy-out. The consortium has acquired trade names, customer lists and "minor fixed assets" from the liquidators for R2.5 million. But all the distribution contracts it formerly held with software vendors were nullified when Siltek went into liquidation and have to be renegotiated.
"The vendors must be asking themselves if they have rocks in their heads to give these people more money, to extend credit to them," says Lello. However, he says most of the vendors have agreed in principle to back the company and it hopes to have all deals in place by December.
The investors are expected to pump around R40 million into the business, and Lello says he will invest in it personally.
Doug Woolley will head up the company with Vaughn Parkin as financial director. Almost all of the former management are expected to remain with the company, which will have a headcount of between 100 and 120 people.
Lello has a long history with Workgroup. He was one of the founders of the business who left the company to move out of distribution after it was bought by Datatec in 1996, but says he has always had a soft spot for the software business.
Wokgroup is to continue to focus on its software licensing business and will act as what Lello describes as a microlender to the channel. Around 40% of its revenue has historically been derived from licensing Microsoft products.
"We rely very much on the mix of software," says Lello. "Windows and [MS] Office are really the staples of the diet, like rice and potatoes. We add products that are nice and have better margins, like Adobe and Citrix, to that."
Despite Workgroup`s 10-year profit history, he admits that current market conditions are not conducive to restarting any form of IT business, but says there had been no choice.
"If we waited until January, after all our people went away over Christmas, there wouldn`t have been a team left. We wanted to rebuild the team now."
Lello says he sees no conflict in his involvement in the consortium.
"Once we put the company into liquidation I was no longer in control of the process of what gets accepted and what doesn`t; that is firmly in the control of the liquidators. It would also be true to say this is a significant risk. We are not buying a running business."
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Siltek applies for liquidation, MBOs to follow
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