Sysorex Buys Lilien: Why Two VARs See The Value In Combining Expertise

Government-focused solution provider Sysorex Global Holdings acquired commercial business-focused solution provider Lilien in a move that expands the market, technology and services of both companies.

The move brings together Sysorex, a publicly listed company with revenue of $4 million to $5 million, and Lilien, a private company with revenue of about $40 million.

For Lilien, the much larger of the two companies, the acquisition really means it has taken itself public, with three of its top executives now on the Sysorex board, said Lilien CEO Geoffrey Lilien.

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"We have a lot of say in the company direction, and in future acquisitions and growth," Lilien said.

The acquisition stemmed from a need to bring traditional solution provider expertise to the more services-focused Sysorex, said Nadir Ali, president of Santa Clara, Calif.-based Sysorex.

Sysorex, which was formed 30 years ago, had built up a federal government business with annual revenue of nearly $200 million before it was sold to Vanstar, which two years later was acquired by Inacom.

Sysorex was restarted in 2002 but remained fairly quiet until a reverse merger in 2011 with a company called Softlead turned Sysorex into a company listed on the OTC (over the counter) market. The company currently focuses on federal government business with an emphasis on services, Ali said.

However, Sysorex decided it needed to diversify its business and therefore looked at expanding into the commercial market via acquisition.

"We understood the VAR business from the old days," Ali said. "We want to diversify from our government base and leverage both companies' skills to develop both customer bases."

That desire led to talks between Sysorex and Lilien, a solution provider in the commercial market with a traditional hardware practice and fast-growing expertise in the analytics, big data and security markets, Ali said.

"Lilien has been building these businesses for the last couple of years," he said. "As customers look at how to manipulate the data they are collecting, they are looking at how to monetize the value of it. This has been a natural progression for Lilien."

Sysorex also wants to leverage Lilien's traditional storage, networking, server and workstation business as government contracts come up in 2013 and beyond, Ali said.

NEXT: Bringing Sysorex, Lilien Together

"A lot of the expertise that Lilien has built up in these areas can be taken to the government space," Sysorex's Ali said. "We have the experience bidding on government contracts. We are on the GSA schedule, and on several prime and subcontract vehicles. We just won a multiple award for a $250 million Navy contract."

Sysorex is one of 13 small businesses that won that contract, online news site Washington Technology reported in February. The cost-plus-fixed-fee contract has a base value of about $50 million but could grow to up to $250 million if options are exercised, it reported.

Geoffrey Lilien said his company has had many calls with offers to acquire it, and has actually talked seriously to 20 to 30 of them, including Sysorex.

In this case, a business contact of Dhruv Gulati, executive vice president of Lilien, heard that Sysorex was looking to make an acquisition and brought it to the attention of his peers.

"At first, we thought, federal government and services? Where do we fit in?" Lilien said. "But then we met with Sysorex, and saw that their vision of where they want to take their business was the same as ours."

The two companies started talking about an acquisition in October or November, but did not close the deal until March, Lilien said.

The lack of overlapping operations between the two, combined with the fact that there would be no staff reductions, helped close the deal, Lilien said. "That's the real power of an acquisition," he said.

Sysorex expects to do more acquisitions, Ali said.

"We have companies in mind," he said. "We have a pipeline of deals we are evaluating. But we are also pursuing organic growth."

Ali and Lilien both declined to give a dollar value to the acquisition. However, San Francisco-based commercial finance and debt restructuring firm Business Capital said last month that it had structured a $5 million business acquisition package for Sysorex to acquire Lilien in a combination stock and cash deal.

PUBLISHED APRIL 17, 2013