CDW’s $2.5B Sirius Buy Adds Up To One Of Biggest Deals In Channel History

CDW’s blockbuster $2.5 billion acquisition of services powerhouse Sirius Computer Solutions catapults the company beyond its direct marketer roots into a true solution provider in one of the biggest deals in the “history of the channel,” according to top channel industry executives.

“This is a very big deal,” exclaimed Martin Wolf, president of martinwolf M&A Advisors of Scottsdale, Arizona, one of the top technology services investment advisory deal-makers. “This is one of the largest and most important transactions in the history of the channel. There is good reason to like it. It adds additional services capabilities to CDW and clearly transitions them from roots of a direct marketer to a true solution provider.”

Wolf said he was not surprised at the overwhelmingly positive investor reaction to the deal, which sent CDW shares up six percent to $118.54 in early morning trading on five times the normal trading volume. “You can never pay too much for a great asset,” he said. “Price is what you pay. Value is what you get and CDW will get great value from this deal.”

The deal brings together one of the top providers of IT products in CDW, No. 5 on the CRN 2021 SP500 with $18.46 billion in sales, with $2.04 billion solution provider powerhouse Sirius, No. 21 on the SP500.

CDW made its bones selling IT products with a direct sales catalogue with a legendary telemarketing sales organization. Sirius has diversified from its roots as an IBM solution provider powerhouse into a broad and deep services organization. Sirius now delivers 400 professional services engagements a year with top notch engineering talent and 50 technology enablement centers. The company – which was owned by an affiliate of private equity player Clayton, Dubilier & Rice – has broad and deep certifications and services capabilities with strong offerings that cover all the major vendors including Dell Technologies, Cisco, IBM, Red Hat, Microsoft, AWS and Palo Alto Networks.

“This is a deal unlike anything we have ever seen in the history of the channel,” said the CEO for a top national solution provider, who did not want to be identified. “We’ve seen deals like this with distributors, ISVs and OEMs but nothing like it in the channel. This brings CDW higher up the value chain. It is a huge deal that shows the on-going consolidation in the industry and the importance of IT services and cloud services in the digital transformation era. This allows CDW to provide complex solutions. It makes them a pretty formidable company.”https://eb190f94d691c52864641dc6638c1ba6.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html

The deal expands CDW’s services portfolio by approximately 45 percent from $900 million in 2020 to approximately $1.3 billion. It also increases CDW’s gross margin by approximately 110 basis points. Combined the two companies will have 2020 net sales of $20.5 billion.

Wolf said the deal fundamentally changes the character of CDW giving the company the ability to join together its unmatched sales and customer experience prowess with Sirius’s ability to deliver high end IT services including much in demand digital transformation, security and application modernization.

“CDW is going to take their customer experience and overlay it into the solutions set of Sirius,” he said. “CDW will now be able to provide in house solutions to their large customer base.”

That in house services muscle will be key with customers demanding more managed services capabilities, said Wolf. In fact, he said, the deal sets up CDW to provide its own services versus using the services of other third parties or vendors. “That is going to create additional gross margin for CDW,” he said. “It’s a very smart acquisition.”

The deal makes “CDW much stronger,” Wolf said. “They will be less willing to sell service packs of other vendors. They will sell their own services. Then the question is who really controls the customer over the next five years: the vendor or the solution provider?”

CDW doesn’t get the credit it deserves as much more than a stellar IT product sales organization, said Wolf. He said CDW’s real genius is a “customer experience” capability that is beyond compare.

“CDW’s core is not sales, it is customer support and customer service, and they as good as there is in that,” he said. “They are the leader in that space. Most people confuse that with just having a great sales culture. It is more than that. They are a preeminent sales and marketing organization in any category. It’s a culture. They understand what a customer is prepared to pay for and they deliver it at a discount. Their financial performance over the history of the company is off the charts.”

The CDW acquisition of Sirius deal is “obvious recognition by CDW that clients are demanding enhanced services,” said Ron Dupler, the CEO of GreenPages, No. 191 on the SP500, which has transitioned from a system integrator into a cloud consultant and services provider. “Customers are not just looking to acquire technology. They are looking for strategic architectural advice on how to compete and win in the digital era. This is great validation for the importance of the work being done by the solution provider community in areas like cloud, security and digital transformation in the current business climate. Technology today is the business.”

Bob Venero, CEO of Holbrook, N.Y.-based solution provider Future Tech, No. 100 on the 2021 CRN SP500, agreed. He called the $2.5 billion price tag a testament to the power of the services capabilities of regional and national providers.

“This is one of the biggest deals ever in terms of acquiring a regional or national solution provider,” he said. “Whenever there is a deal like this it affects the valuation of other service providers. It’s like in real estate when somebody buys a property at a high amount. That is a comp that is used when other people sell their homes. This is the perfect example of a high comp that shows the value of the solution provider, its capabilities and its profitability in the markets they serve.”

That said, Venero cautioned, that CDW is sure to face significant challenges integrating the Sirius business. “CDW has always been primarily a box mover and when they have attempted to go into services or true solution provider market they were still looked at as CDW. Sirius is obviously a big service provider and they are well-respected. But now they are part of the CDW umbrella and CDW’s overhead costs are much, much higher than those of a regional or national solution provider like Sirius.”

The big question is will CDW allow Sirius to act as its own separate business, said Venero. “There is a lot that remains to be seen with regard to how Sirius will fit into CDW,” he said. “We have seen all too many times where an organization acquires another company thinking they are going to be able to integrate an acquisition like this seamlessly and that never happens. CDW’s smart play would be to let Sirius continue to do business on their own, capturing the profit that comes from that business.”

Another CEO for an SP500 company, who did not want to be identified, said the deal is not the first time CDW has attempted to move into the enterprise services market. In 2006, CDW acquired Berbee Information Networks, a Cisco superstar and one of the largest privately held solution providers in a $175 million cash deal.

“Obviously CDW is still a commodity-based company, but they are really good at it, they are a monster in the IT products business,“ said the CEO. “CDW was trying to climb up the services stack when they bought Berbee and it didn’t go well. This Sirius acquisition is going to be a big cultural challenge for them.”RELATED TOPICS:

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