MuM sells distribution business

Mensch und Maschine Software (MuM) just announced that it had sold off its software distribution business to the Tech Data Group for around €25 million, about 2/3 of which which will be paid in at closing and the other 1/3 to be paid out depending on business performance over the next three years.

As a quick reminder, MuM has been transitioning its business from distribution to value-added sales because VAR sales typically have higher margins and establish stronger relationships with customers. MuM has been acquiring European VARs to broaden its network and areas of expertise and last reported that it has 40 locations in Germany, Austria and Switzerland, giving it “nearly full area coverage” with its VAR business.

Under the agreement with Tech Data, MuM will retain its subsidiaries in France, Italy, UK, Belgium, Poland and Romania. These will “serve as the base for building up the VAR business, which will be partly supplemented by acquisition of former reselling partners in the German speaking countries.” This new segment will be called “VAR Europe”; MuM expects it to have sales of €30 million to €40 million in 2012.

MuM CEO Adi Drotleff said in a prepared statement that “the sale of our distribution activities and [the] rolling out the VAR business to Europe, we are rigorously transitioning our business model towards higher value and margins… The particular beauty of exiting from distribution first is that, other than in the German speaking countries, we do not expect negative operating margins during transition to the VAR business, as we can support the business during that phase from the purchase price rates until it achieves the target margin from its own activities. Thus the new segment will provide a positive EBITDA contribution from the beginning.”

MuM’s investors appear lukewarm to the idea, with the share price essentially flat today. The deal is dependent on various conditions including antitrust consent, which is expected by the end of October.

This is clearly a good thing for MuM, enabling it to build out the higher margin VAR business and creep ever further away from a world where we increasingly buy software in app stores, online. I’m not sure what it means for customers who currently rely on MuM as a distributor — perhaps they are indifferent to whose label is on the box?