Maple Leaf Shocker: Compugen To Buy Metafore, Create $530M Powerhouse

Two of Canada's biggest solution providers are joining forces, with Compugen bolstering its cloud and managed services capabilities by purchasing 800-employee Metafore Technologies.

The acquisition will birth a Canadian channel giant with nearly 2,000 workers, annual sales between $490 million and $530 million, and expertise in everything from networking and cloud to security and professional services.

"Canada officially entered its second recession in the last seven years earlier this week, and its combination of low organic growth and multiple prospective targets means more M&A in the Canadian IT solution provider market is a foregone conclusion," Marty Wolf, president of Walnut Creek, Calif.-based MartinWolf, a global IT mergers and acquisitions investment adviser, wrote in an email.

[Related: Sirius On The Prowl For Acquisitions As Kelso Preps To Buy Majority Stake]

The deal was submitted Wednesday to the Canadian Federal Government Competition Bureau and is expected to be approved within the next 30 days, Harry Zarek, president and CEO of Richmond Hill, Ontario-based Compugen, No. 59 on the 2015 CRN Solution Provider 500, wrote in an email.

Zarek declined to comment further until the deal closes, while Toronto-based Metafore, No. 77 on the CRN SP 500 and an Elite 150 member of the CRN Managed Service Provider 500, didn't respond to calls and emails for comment.

Harry Hart, founder and chairman of Metafore parent company Hartco, has been looking to exit the IT industry for several years. Hartco handed its distribution business over to Tech Data Canada in late 2013 and sold its franchise network MicroAge to TMN Systems in June 2014, at which point Metafore was the only significant asset remaining.

Hartco began a review of its strategic options in January 2014 after Hart announced a decision to sell his majority stake in the company, but the review was terminated in January 2015 after the company's Strategic Review Committee was unable to find a suitable buyer.

Hart -- who didn't return a call or email for comment -- abruptly changed course in April, offering $18.3 million to acquire the 37 percent of Hartco shares not already owned by his family. But after reviewing the proposal, Hartco's three independent directors unanimously recommended in early May that shareholders reject the proposal.

Less than three months later, Patrick Waid -- who had been Hartco's president since 2003 and Metafore's president since 2011 -- left his post at both Hartco and Metafore. It was at that point that Hart and Zarek hammered out the details of Compugen's acquisition, according to Computer Dealer News, which first reported the news.

Both Compugen and Hartco have been struggling as of late, with Waid indicating that depressed oil prices and weak demand for enterprise systems and software have been a drag on earnings in recent quarters.

Hartco reported an 11.5 percent decline in 2014 sales, to $189.7 million, while annual losses increased to $2.76 million. The start of 2015 was even worse, with year-over-year revenue tumbling 20.2 percent in the first quarter, to $37.8 million, while quarterly losses soared 64.3 percent, to $1.27 million.

Similarly, Compugen -- which is privately held -- fell three slots in the 2015 CRN SP 500 from the No. 56 position in 2014. But Wolf praised Zarek for repositioning Compugen to emphasize its cloud and services capabilities.

"Henry Zarek is a rock star PhD and understands where [the IT industry] is going," Wolf said.

Zarek told Wolf in a September interview that the cloud represents the most significant growth opportunity for Compugen, as it relieves customers of the burden of managing infrastructure and enables Compugen to offer much more comprehensive managed services.

Compugen was named AppSense's western region and Canada partner of the year in May, and received Microsoft's Excellence in Operations Award in July. Meanwhile, Metafore in April obtained three new Cisco Specialist Certifications in unified computing to meet the requirements for selling and deploying Cisco UCS offerings.

Compugen also hedged against slow growth in the Canadian market by opening its first U.S. location -- Houston -- earlier this year. Zarek told Wolf in September that the company plans to focus on promoting its cloud technology and managed services in the U.S.

PUBLISHED SEPT. 3, 2015