All Together Now: Mergers And Acquistions

Activities surrounding the mergers with and acquisitions of solution providers, including those in the 2008 VARBusiness 500 list, have shown no sign of letting up in the past year or so.

Indeed, at least 25 of the VARBusiness 500 solution providers have either acquired or been acquired by other solution providers or investors, according to information gathered from a variety of sources by Everything Channel, the parent company of VARBusiness.

Those deals range in size from the $1.25 billion that Paris-based Capgemini (2008 VARBusiness 500 No. 6) paid for Keane International, to the $6 million that Incentra Solutions Inc. (2008 VARBusiness 500 No. 291) Boulder, Colo., paid for SSI hubcity (2008 VARBusiness 500 No. 433).

One of those deals, the $14 million acquisition of Midrange Computer Solutions Inc. (MCSI) (2007 VARBusiness 500 No. 365) by Minneapolis-based Datalink Corp. (2008 VARBusiness 500 No. 190) just over a year ago offers other solution providers a unique look into what goes into a successful integration. Both were storage-focused solution providers and shared many key vendor relationships, including Sun Microsystems, Inc., Santa Clara, Calif.; Symantec Corp., Cupertino, Calif.; EMC Corp., Hopkinton, Mass.; and IBM Corp., Armonk, NY. However, they served a geographically different set of customers and offered different services, giving the combined company a wider customer base and services offerings.

According to a Form 8-K/A, which Datalink filed with the SEC on January 30, 2007, just over a week before announcing the acquisition, MCSI had assets worth $26.6 million, including cash and cash equivalents of $7.6 million and current liabilities of $23.1 million.

For all of calendar 2006, privately held MCSI had product revenue of $42.8 million and services revenue of $12.3 million, giving it a total revenue of $55.1 million. MCSI that year also had a net income of $1.4 million.

About a year later, Datalink in mid-April reported earnings for the first fiscal quarter of 2008, which ended March 31, of $47.7 million, up from the $40.9 million reported during the first quarter of 2007. The company also reported earnings of $505,000, or 4 cents per share, up from last year's loss of $719,000, or 6 cents per share. The results treated the legacy MCSI results as if that company were part of Datalink for the entire quarter in both 2006 and 2007.

Charlie Westling, president and CEO of Datalink, said MCSI has provided a richer, deeper technical capability and customer base; stronger vendor relationships; increased services capabilities; and the ability to grow the business faster than was possible before the merger.

Datalink could make other solution provider acquisitions this year, especially those with a strong storage focus on integration experience and high-value services with the opportunity to expand into new geographies, Westling said.

"When you are in this business, you are always looking at the opportunities and challenges that you and others are seeing," he said. "We look at opportunities, at how they fit with what we're trying to do, how they affect the market, how it treats our employees. If those seem OK, then we can go into deeper discussions. We may not have just one discussion, but maybe several at the same time, with some falling to the side while others go forward."

Next: 2007/2008 VARBusiness 500 Mergers And Acquistions

2007/2008 VARBusiness 500 Mergers And Acquistions
The M&A trend shows no sign of letting up for solution providers