Sources: Two of Microsoft's Biggest Partners Are Looking For Buyers
Two of Microsoft's biggest software licensing partners are looking for buyers, in the latest sign of the impact the software giant's shift to cloud computing is having on its channel.
CompuCom, No. 23 on the CRN SP500, a $2.2 billion system integrator based in Dallas, is looking to sell its Microsoft licensing business, multiple sources familiar with the company's plans told CRN this week.
En Pointe Technologies, No. 42 on the CRN SP500, a $700 million Los Angeles-based national Microsoft enterprise partner, is seeking a buyer for the entire company, according to sources, who all requested anonymity because they're not authorized to speak about the matter.
Sources said both CompuCom and En Pointe have both recently held acquisition-related talks with SoftwareONE, a $3.3 billion solution provider based in Milwaukee. Christopher Rozzi, senior alliances manager at SoftwareONE, declined comment.
High-level executives from En Pointe and SoftwareONE "have been talking about a merger or outright purchase for a long time. It's come to a deeper conversation in the last three weeks or so," according to one source. Another source said a banker had reached out on En Pointe's behalf seeking a potential buyer.
En Pointe CEO Bob Din denies that the company is looking for a buyer.
"It's simply not true. We are not for sale. Our business is on fire. Every facet of our Microsoft business is growing like crazy. We're winning business in all areas, including solution sales and professional services, not just Microsoft business, so I don't have any reason to sell," Din said in an email to CRN. "This is a rumor promoted by unnamed competitors to disrupt our business plans, and we won't let it. This is strictly rumor."
CompuCom CEO Jim Dixon declined comment.
Both CompuCom, founded in 1987, and En Pointe, founded in 1993, one-time high-flying public companies that are now privately held, are part of a small group of partners that Microsoft calls Licensing Solution Providers (LSPs). Potential buyer SoftwareONE is also an LSP.
LSPs are the only Microsoft partners authorized to handle software volume licensing transactions. Microsoft does not publicize the number of LSPs it works with; channel sources say there are approximately 15 in the U.S. CompuCom and En Pointe are also part of the handful of partners Microsoft allows to sell Surface tablet/PC hybrids.
[Related: Sources Say Microsoft May Revoke Compucom's Status As A Top Partner]
Sources told CRN in November that Microsoft was considering revoking CompuCom's LSP status because it wasn't meeting revenue targets or investing enough in technical certifications.
En Pointe, meanwhile, has a strong services business and is also one of Microsoft's largest Office 365 partners. Last June, Los Angeles County picked En Pointe to implement more than 100,000 Office 365 seats, a deal worth $72 million in licensing revenue alone.
One longtime LSP sales executive told CRN that Microsoft licensing isn't nearly as lucrative as it used to be.
"The profitability is more or less gone from a Microsoft licensing standpoint," said the executive, who spoke on condition of anonymity.
In addition to profitability concerns, some LSPs are having trouble meeting Microsoft's requirements and are in danger of losing their LSP status, said the executive. "Some LSPs are in a huge state of flux right now," he said.
For years, LSPs had the volume licensing market to themselves, but Microsoft has steadily been cutting their fees in recent years, one longtime Microsoft partner told CRN.
"Microsoft is broadcasting, at the highest levels, that software licensing is a business they're not going to continue to pay for," said the partner, who requested anonymity.
NEXT: Why LSPs Are Now Competing With Traditional Microsoft Partners
Microsoft is now leveling the playing field with its Cloud Solution Provider program, in which partners sell cloud software to customers and handle aspects of deals that used to be the domain of LSPs.
As a result, though, LSPs are now moving into traditional partners' turf and, in some cases, developing their own services businesses in order to better compete, said the partner. "This is bringing all the big LSPs into the mainstream channel," he said.
Sources said SoftwareONE is looking to develop its services business, and buying En Pointe would be a solid move in that direction.
Microsoft declined to comment on the potential sale of CompuCom or En Pointe.
In an interview last month, Microsoft channel chief Phil Sorgen declined to comment on whether Microsoft was planning to revoke Compucom's LSP status, but he did say Microsoft is always evaluating whether these types of partners are meeting expectations.
"Our LSP authorization is not a static process. We do it not at a global level, but by country. So there are partners that have been de-authorized over time, and we've added new ones in specific geographic regions," Sorgen said.
"There's nothing new afoot in the broad LSP ecosystem. We're always assessing the capacity that have to serve customers," said Sorgen.
On Monday, Germany-based LSP Comparex announced that Microsoft has authorized it to sell volume licensing products and services, including subscription-based products, in the U.S. market.
Crayon, a Norway-based LSP, is rumored to have been given the same status, but it couldn't be reached for comment, and a Microsoft spokesperson declined to confirm this.
Bob Venero, CEO of Holbrook, N.Y.-based solution provider Future Tech, No. 234 on the CRN Solution Provider 500, said Microsoft's LSP licensing model has been growing "less and less partner-friendly" in recent years.
Future Tech is required to work with an LSP on enterprise volume licensing deals, but Venero said this is tricky because LSPs compete with his company for customers.
As a result, Venero said enterprise solution providers now find themselves counseling customers on how to reduce their Microsoft licensing expenditures, rather than working hand in hand with Microsoft to find an appropriate licensing solution.
PUBLISHED JAN. 29, 2015