Black Box CEO On What’s Next After Federal IT Services Unit Sale

Black Box's sale of its federal government IT services business leaves it more focused on its core capabilities while providing a stepping stone on which the company hopes to recover its overall business.

At least that's the plan for Joel Trammell, CEO of the Lawrence, Pa.-based IT solution provider, who told CRN that the sale still leaves his company with more decisions to make about its future.

Black Box on Monday said it sold its federal government IT services business to Arlington Capital Partners, a Chevy Chase, Md.-based private equity firm, for $75 million in cash. Going forward, the Black Box federal government IT services business will operate independently as Tyto Athene, a Herndon, Va.-based company.

[Related: Black Box Sells Federal IT Unit To PE Firm, Creating Tyto Athene]

Prior to the sale, Black Box's business was split into three. Its federal business was the smallest at about $120 million in annual revenue, Trammell said. The largest part of its business is the commercial IT services business, with annual revenue of over $500 million, followed by its product manufacturing and sales business with annual revenue of over $150 million, he said.

Selling the federal government IT services business, which was built on a prior acquisition, was a relatively easy way to help restructure Black Box for the future, Trammell said.

"Dealing with the federal business environment is different from the rest of our business because you're dealing with government buyers," he said. "Our people needed a lot of security clearances. And so it was separate from our commercial business."

Trammell said the federal business had been growing for a few years before 2015 when growth stalled because of the federal government's sequestration efforts to limit the size of the federal budget.

Selling the federal business is a part of solving Black Box's financial issues, Trammell said. "But we need more adjustments," he said. "We need to renegotiate or restructure our current debt in order to continue."

2018 has been a tough year for Black Box as it looks for ways to maintain the company's liquidity.

Black Box in July warned via an SEC filing that the company may not have enough cash to make into next year without filing for bankruptcy, and that normal operations combined with selling off its federal government work might not provide enough cash to manage its $155.7 million in outstanding loans.

Black Box on Monday said it is working with advisers to explore "all other strategic alternatives" to address its liquidity needs including, among others, refinancing, restructuring, and the sale of other assets.

The financial issues stem in large part from the company's acquisition of over 100 companies but never really integrating them, Trammell said.

"We made a lot of acquisitions in the analog phone business, but over the years, they were run as individual businesses," he said. "We had 42 different offices, and were slow to consolidate them. We've been transitioning them to a single organization, but it's been slow."

Black Box's commercial business was stable in the last five or six quarters, and is expected to grow, Trammel said. It includes managed IT services along with large deployments of wireless access points, large infrastructure cabling, and digital phones.

"Because of our large number of offices, we can put people with a ladder anywhere," he said. "That's hard to do when working with local providers if you are a large national company. In general, we see a lot of opportunities. Our operations in the past did business in one or two locations. Now with our footprint, we can expand operations to multiple locations."

Black Box's product business stemmed from its roots as a manufacturer of IT products, and over time expanded to distribution, Trammell said. But that is also changing.

"We are now creating our own intellectual property, so we're back to the manufacturing side and seeing growth there," he said. "For instance, we acquired KVM technology from Ireland a few years ago, and this month introduced our new Emerald unified KVM platform."