Sources: CompuCom, Pomeroy In Merger Talks To Create $3.1B Channel Powerhouse

Systems integration giant CompuCom and managed services superpower Pomeroy have entered into merger discussions to create a 15,500-employee, $3.1 billion solution provider behemoth, according to sources familiar with the situation.

The deal would bring together two channel mainstays with expertise in everything from IT outsourcing, end-user computing and help desk to network, data center and cloud. Both companies are owned by private equity, with Thomas H. Lee Partners purchasing CompuCom in April 2013 and Clearlake Capital scooping up Pomeroy in October 2015 and combining it with retail technology provider Tolt Solutions.

Combining CompuCom with Pomeroy would unleash a services juggernaut, according to one source with knowledge of the discussions who didn't want to be identified. CompuCom operates in North America and India, while Pomeroy has 25 offices in North America and 10 offices in Western Europe.

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"Put these two companies together and you would have one of the pre-eminent product and services companies in this industry," the source said. "If they pull this off, they are going to be a big player. It's a good deal for Pomeroy and CompuCom."

Clearlake Capital and Thomas H. Lee Partners declined to comment, while CompuCom and Pomeroy didn't immediately respond to requests for comment.

Hebron, Ky.-based Pomeroy, No. 42 on the 2017 CRN Solution Provider 500, has sales of more than $1 billion and has thrived since joining forces with Tolt and becoming part of Clearlake, the source said. The company is laser-focused on providing managed services to customers with between 2,500 and 25,000 seats, CEO Chris Forman told CRN in 2015, adding he anticipated more consolidation in the channel.

"Clearly, customers are looking for single-source providers, and this a such a fragmented industry that most of the companies are either too small to scale or they're so large that they're inflexible," Forman said in November 2015. "Clients are looking for the perfect balance of both of those.

It's been a different story for Charlotte, N.C.-based CompuCom, No. 23 on the 2014 CRN Solution Provider 500, which has had four CEOs in the past four years and had its credit rating downgraded twice in the past two years by Moody's Investors Service.

"CompuCom is a good company, but they have too much debt," the source said. "That's the downside of private equity. It puts debt on the business."

Moody's had assigned CompuCom a B2 credit rating in July 2007 and held it there for more than eight years, but ended up downgrading the rating to B3 in September 2015 and again to Caa2 in June 2016. CompuCom's capital structure may be unsustainable, Moody's said last year, due to the company's elevated leverage and deteriorating business performance since becoming part of Thomas H. Lee Partners.

"CompuCom faces intensifying competitive pressure from larger and financially stronger rivals as well as competitors based in lower-cost regions, increasing CompuCom's susceptibility to weakening price trends, especially in the context of contract renewals," Moody's wrote last year.

CompuCom's revenue has declined sharply in recent years, going from $2.2 billion in 2014 to $1.9 billion in 2015 to $1.12 billion in 2016. The company sold its software business, which included a select Microsoft licensing business, to SoftwareONE in March 2015 for an undisclosed amount, and laid off 144 employees in March as it shifted service desk operations from Texas to Kentucky, Mexico and Canada.

The company's leadership situation has been similarly unstable since longtime CEO Jim Dixon – who led CompuCom from 1987 to 1996 and again from 2004 to May 2013 – stepped out of the CEO role and was replaced by division leader Tony Doye.

Doye left CompuCom in August 2014, prompting Dixon to step back into the CEO slot on an interim basis. In February 2015, Don Doctor – who joined CompuCom's board in May 2013 and had spent several years as CEO of data center maintenance company SMS beginning in 2006 – replaced Dixon as CompuCom's leader.

Just 22 months later, CompuCom promoted Dan Stone – former president of Lenovo Latin America and more recently leader of CompuCom's end-user enablement division – to be its next CEO. One month later, David Hall – a 27-year CompuCom veteran who ran everything from professional services and integration services to managed services and consulting – took a leadership position at competitor PCM.

The source told CRN that the turnover in CompuCom's top management team over the past year has been a big mistake.

CompuCom additionally relocated its corporate headquarters in December 2016 from the Dallas area to Indian Land, S.C., a suburb of Charlotte, N.C., and less than 500 miles from Pomeroy's Cincinnati-area headquarters.

CompuCom said at the time the move would bring the company's product and service development team together in one location, allowing them to work more closely with one another and with CompuCom's senior leadership.

"South Carolina is very aggressive in attracting new business and new jobs," Jonathan James, CompuCom's chief marketing officer, told CRN at the time. "You get lots of the benefits of the proximity to Charlotte, and yet you're just over the border."