Sirius' Mertens: MSI Deal All About Skills, Scale

As Sirius Computer Solutions president Joe Mertens sees it, the most successful solution providers in the not-to-distant future will be those that can offer very deep expertise, across a broad range of services, for a wide range of vendor technologies.

That's the motivation behind the Sirius plan to acquire MSI Systems Integrators in a deal that will create a VAR with annual sales greater than $1 billion.

"Our view of what has to happen in the [technology solution provider] industry is that you're going to see a few large players that have deep skills across a variety of platforms and who can cover the entire country," Mertens said in an interview.

At the other end of the spectrum will be small solution providers covering small geographies with niche businesses in specific technologies and/or vertical industries. "The folks in the middle there are really going to struggle," Mertens said.

Monday Sirius announced that it would acquire MSI for an undisclosed sum with the companies expecting to wrap up the deal by Nov. 30.

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San Antonio, Texas-based Sirius was number 87 on CRN's 2010 VAR 500 list with 2009 revenue of $693.8 million. Omaha-based MSI was ranked number 133 with 2009 sales of $350.9 million. Because both companies have been growing, Mertens said the combined companies will have pro forma revenue of more than $1.1 billion.

The merger also creates what is undoubtedly the biggest IBM solution provider, as measured by sales volume, the reseller's volume of purchases from IBM, number of customers and the number of IBM certified employees, Mertens said. Sirius was already perhaps the biggest IBM partner and MSI was in the top five, "so that certainly makes us far and away the largest player," he said.

But getting bigger in the IBM space wasn't the main motivation behind the pending acquisition. MSI "has a very strong Cisco practice in the central United States and we have been trying to beef up our strengths relative to Cisco on a national basis and this puts us a long way toward that goal," Mertens said.

Another attraction: "They have built a network operations center and built a managed service offering that is focused on the IBM mainframe and Power [server] environments," Mertens said, noting that those are technology areas Sirius also has focused on. He said Sirius should be able to scale those centers nationally "very quickly" and make the company one of the biggest managed services providers in the IBM market.

And the acquisition adds more than 300 skilled technicians and engineers to Sirius, "which certainly helps strengthen the skills that we have to provide to our clients," he said. MSI's presence is especially strong in Nebraska, Kansas, Minnesota, Iowa and the Dakotas.

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"For us, it was really about skills. Our clients are demanding more and more often that we have deep skills across all of the platforms and operating system environments that they have," Mertens said. Those skills must cover multiple vendors' technology, operating system support, virtualization and IT consolidation.

"Clients today aren't focused on commodity hardware, they're focused on the services you can bring to them," he said, noting that a high percentage of MSI's revenues came from services.

Mertens was careful to note that MSI's owners did not sell the company out of economic necessity. "They were actually having the best year of their history," he said. MSI's owners opted to sell to Sirius because its executives hold the same views about the need for breadth and depth of solution provider skills and scale. "It was really having the same viewpoint of what the future looks like," he said.

Jim Simpson, MSI president and CEO, will take on the role of president of strategic initiatives at Sirius, overseeing the company's efforts to expand its Cisco practice and managed service operations nationally, Mertens said. Phil Sauvageau, who was MSI's chief operating officer, will become CTO at Sirius and manage the company's brand and services organization.

Given their like-minded view of how the IT industry and solution provider market is evolving Mertens said Sirius and MSI had periodic merger discussions going as far back as 2006. Mertens declined to disclose details about financing for the MSI acquisition, such as whether it's being financed from operations or if funding came from outside investors. Sirius is back by private equity firm Thoma Bravo.