Sources: Data Center Goliath Sirius In Negotiations To Acquire $1B Security Powerhouse Forsythe

IBM channel superstar Sirius Computer Solutions is negotiating the purchase of 1,000-person security and hosting behemoth Forsythe Technology, according to sources familiar with the situation.

The acquisition of Skokie, Ill.-based Forsythe, No. 37 on the 2017 CRN Solution Provider 500, would create a 3,000-employee, $3.2-billion solution provider giant with expertise in everything from data center, hosting and security to lines of business, cloud and connectivity.

Sirius is owned by private equity firms, with private equity workhorse Kelso & Co. scooping up the San Antonio, Tex.-based company, No. 26 on the 2017 CRN Solution Provider 500, for $830 million in September 2015. Forsythe, meanwhile, has the unusual distinction of being 100 percent employee-owned.

[RELATED: Sources: Billion-Dollar Solution Provider Forsythe Is Up For Sale]

Kelso declined comment for this story, while Sirius and Forsythe didn't immediately respond to requests for comment. Sirius has 29 offices in the United States and one in India, while Forsythe has 39 U.S. locations, as well as facilities in Canada, Japan, Singapore, the Netherlands and the United Kingdom.

One source with ties to the investment banking community told CRN in June that Forsythe has hired an investment bank and is actively shopping the company. The company would be an attractive target for the right buyer looking to capitalize on the broad portfolio of services and solutions Forsythe has built out over the past several years, according to the source.

"With the right buyer, there are a lot of costs that can be taken out," the source said in June. "There are a lot of investments that Forsythe has made that are really expensive. What buyers are going to be looking at is: Are those investments yielding a timely return?"

Other major channel partners are also pursuing consolidation. ConvergeOne, a Cisco and Avaya shop, announced the acquisition of managed services provider Strategic Products and Services, No. 74 on the SP 500, on Thursday. CRN also reported earlier this month that MSP powerhouse Pomeroy, No. 42 on the SP 500, is holding merger talks with systems integration giant CompuCom.

Sirius has been on a rapid growth trajectory, making three acquisitions since being acquired by Kelso and boosting its headcount by 12 percent over that time, according to LinkedIn. The company bought network security workhorse Force 3, No. 79 on the 2015 CRN SP 500, in March 2016, as well as IBM infrastructure solutions provider thinkASG and IT security firm Continuum Worldwide in December 2016.

Moody's Investors Services assigned Sirius a B1 credit rating in September 2015 thanks to the company's consistent track record of generating positive free cash flow and paying down debt. Moody's also praised Sirius for diversifying its vendor base to include products from Cisco, EMC, Dell, HP and NetApp, which the bond credit rating business said will support its continuing profitability.

"The stable outlook reflects Moody's expectation that Sirius Computer will maintain its leading market position as a value-added reseller of IT products and services to the mid-tier market in the U.S., and produce consistent levels of operating profits and cash flows to enable it to deliver," Moody's said in September 2015.

Moody's expressed concern, however, over Sirius's smaller scale compared to competing IT value-added resellers and managed services firms, as well as the changing nature of IT deployments in the enterprise. Moody's also dinged Sirius for its reliance on IBM, noting that more than 52 percent of Sirius's revenue comes from IBM products and services.

This concentration, though, has enabled Sirius to be IBM's largest value-added reseller in the United States that primarily serves large enterprises and medium-sized businesses, Moody's said. Sirius is also a premier VMware partner, a platinum partner with Hewlett Packard Enterprise and Intel, a gold partner with Cisco, Microsoft, and Trend Micro, and a standard Amazon Web Services partner, according to the 2017 CRN Tech Elite 250.

Forsythe, meanwhile, is a premier Dell, IBM, and VMware partner, a platinum HPE and Symantec partner, a gold Cisco and Citrix partner, and a star NetApp partner, according to the 2016 CRN Tech Elite 250. It has notched an impressive 40-plus Partner of the Year awards, including a Red Hat Innovation Partner of the Year award in 2017, and several Oracle and Cisco partner awards in 2016.

The company's sales have remained stable at about $1.1 billion for the last four years, and the company has been profitable for 46 consecutive years with double-digit operating earnings in 2016. The company has 1,000 employees, including 500 engineers and consultants with 2,500 certifications.

Forsythe has carried out 10 acquisitions since 2001, and in 2015 launched both its Hosting Solutions Division and its Meta7 Division to deliver Oracle consulting and integration services. The solution provider was named for the second consecutive year as one of the top consulting firms in IT strategy by Forbes magazine.

The company also has a thriving data center business. The company broke ground on a $130 million data center facility in Elk Grove Village, Ill., in 2014, opened Forsythe Data Centers in spring 2015, and then sold the real estate last August to T5 Data Centers and leased back the space.

Forsythe is in the midst of an aggressive build-out of its managed services offerings. Already this year the company has launched a multi-cloud private storage offering, and a security incident and event management (SIEM)-as-a-Service offering, with additional services in development.