Insight-SADA Deal Makes Tony Safoian Richest Man in the Channel
It could be the largest deal ever with a channel partner at the center.
![Tony Safoian rich after Insight-SADA deal Tony Safoian rich after Insight-SADA deal](https://eu-images.contentstack.com/v3/assets/blt10e444bce2d36aa8/blt132e4d62259ba9f7/656e5eea138a57040ae3bdd6/Money_Bag.jpg?width=700&auto=webp&quality=80&disable=upscale)
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Investment banker Raymond James is maintaining a “Market Perform” rating on Insight’s stock following the announcement and closure of the acquisition of the Google cloud-focused SADA organization. The analysts who follow Insight and other tech vendors were awaiting additional clarification around the mechanics of the acquisition’s earnout structure, expected EBITDA, and health of SADA prior to acquisition.
The Raymond James analysts were projecting that $50 million-$60 million of EBITDA (earnings before interest, depreciation, and amortization) were acquired by Insight for $620 million based on a $210 million base-case earnout. The analysts dubbed the deal “an attractive valuation multiple considering the mix and margin profile of this business are quite attractive.”
Strategically, this diversifies Insight’s cloud business, which is heavily weighted toward Microsoft, and provides additional scale to the services business at an attractive multiple, resulting in earnings accretion inclusive of incremental interest expense.
Every channel partner organization wants to know what their business is worth based on current M&A activity. That is why the sale of SADA to Insight is being so closely watched in terms of a valuation on technology services business. Raymond James estimates Insight paid between seven-and-a-half and 14-and-a-half times expected fiscal year 2024 EBITDA for SADA, which factors in a span of no earnout to a maximum earnout, or 11 times earnings considering the target earnout.
“On the surface, we believe this an attractive valuation considering the high margin software/services nature of SADA, but we look forward to additional growth disclosures expected in February to understand the asset/valuation in better detail,” Raymond James’s analysts wrote in a recent report.
The purchase was funded with cash and its asset-based lending facility, and SADA can receive an additional earnout of up to $390 million over a three-year period. Insight management is targeting a $210 million earnout. SADA had $200 million of 2022 gross profit on $251 million net sales with 850 employees. In FY24, Insight expects SADA to increase the gross margin, add $50 million-$60 million of EBITDA, and contribute 55-75 cents EPS to Insight.
Fiscal year 2023 guidance: Management now expects to have low-to-mid single digit growth, from low single-digit growth in FY23. With the back-end loaded EBITDA/EPS seasonality of SADA, it is expected to add 20-30 cents of EPS to Insight’s fourth quarter. The fiscal year 2023 EPS range is now at $9.60-$9.90, up from $9.40-$9.60.
In late summer, the Robb Report published a story about Safoian buying a $25 million mansion from energy drink mogul Russ Weiner. The Beverly Park, California, home had been on the market for three years and was one of two lavish estates owned by Weiner in the expensive and star-studded gated community. The 1.2-acre property sold for exactly $25 million to SADA CEO Safoian and his wife, Lana.
The home was built in 1999 for a now-deceased Russian businessman and designed by noted architect Richard Landry, the Tuscan-style manor sits behind gates and tall hedges. With 10,575 square feet of main house living space, plus a detached guesthouse, the resort-like place has more than enough room for grand galas and events, the Robb Report stated.
Weiner, 53, bought the house in 2015 for $18.6 million. With brief interruptions, the essentially unchanged property has been on the market since early 2020, with asking prices ranging from a high of $35 million to a low of $27.9 million. When Safoian finally came calling, the house was listed at $30 million. The home has eight bedrooms and 10 bathrooms, interior highlights include an enormous foyer with dual staircases, limestone flooring throughout, a gym with an attached sauna and massage room, a chef’s kitchen with commercial-grade appliances and a mahogany library that includes a walk-in safe. Upstairs, the primary retreat is itself the size of a small house, and packs in a spa-style bathroom, dual closets, a private office, private balcony and a “hidden” spiral staircase leading down into the library, per the listing.
Outdoors, the grounds include two expansive lawns, one made of AstroTurf and the other containing real grass. There are also pathways traced by manicured boxwood, bright bunches of bougainvillea and olive trees. And al fresco entertaining is made easy with a loggia-covered dining area and a poolside outdoor kitchen with an outdoor fireplace, wet bar and built-in BBQ center.
Insight refers to itself as a solutions integrator, expected to generate $2.4 billion in revenue this quarter, producing a gross profit of $463.7 million, or 19.4% of revenue.
In 2023, the company’s revenue is expected to decline to $9.12 billion from $10.43 billion. The company’s net income for 2023 is expected to come in at $339.3 million vs. $320.2 billion last year, according to Raymond James. In 2022, Insight recorded $340 million in cloud gross profit. In North America, Insight is predominantly a hardware reseller, recording some $5.73 billion in sales from hardware with $1.55 billion from software and only $1.19 billion in services which includes cloud solutions. So the company’s need to bolster its services was a driver of the SADA purchase.
Insight’s proven expertise and scale with Microsoft Azure and AWS, combined with SADA’s robust Google Cloud proficiency, establishes it as a comprehensive multicloud provider. Key data points include:
The acquisition adds approximately 850 professionals dedicated to the Google Cloud ecosystem, increasing Insight’s overall team to more than 14,500 teammates across 26 countries to serve clients globally.
SADA is a Google Cloud Premier Partner with 10 Google Cloud specializations, including security, infrastructure, cloud migration, data analytics, application development, location intelligence and machine learning.
Insight has a multibillion-dollar relationship with Microsoft. It's the worldwide 2023 Microsoft Solution Assessments Partner of the Year and an Azure Expert Managed Service Provider. Insight has earned more than 65 Microsoft Partner of the Year awards and maintains 22 Microsoft specializations.
Insight is an AWS Advanced Tier Services partner with four competencies including migration, Microsoft Workloads, DevOps and security.
Martin Wolf Associates offered some detailed analysis on the Insight purchase of SADA. Below is what the M&A advisory firm published concerning the Insight-SADA deal.
Accretive: Insight noted the acquisition will be immediately accretive to the company’s adjusted diluted earnings per share. Insight expects to see a 20-30 cent increase in adjusted diluted EPS just in the month of December, and expects an increase of 55-75 cents in adjusted diluted EPS in 2024.
Seasonality: SADA’s business is seasonal, with their biggest month in December. Insight says they did not want people taking the 20-30 cents of accretive value in December and annualize that number. SADA typically realizes a negative to low EBITDA during the first half of the year and the second half is where they realize most of their profitability.
Good Value: This transaction represents a strong financial value play for Insight as SADA historically recognizes $251 million of net revenue, $200 million of gross profit and $50 million-$60 million of EBITDA, which Insight anticipates maintaining in the future. Insight anticipates this acquisition will expand total gross margin by over 100 basis points.
Expanding Capabilities: As a result of this acquisition, Insight will increase its Google Cloud capabilities, with already strong exposure to Microsoft and AWS, SADA will enable Insight to further benefit from the growing trend of multicloud adoption, further strengthening its position as the leading solutions integrator.
Strong Cultural Alignment: Insight has detailed during the course of completing this transaction, it feels that SADA’s company culture aligns well with the existing Insight environment. SADA ran a full process for this transaction, and through the auction process and Insight’s pre-existing relationships with SADA, leadership through their GCP partnership, both parties feel that integration will be efficient and successful.
Martin Wolf Associates offered some detailed analysis on the Insight purchase of SADA. Below is what the M&A advisory firm published concerning the Insight-SADA deal.
Accretive: Insight noted the acquisition will be immediately accretive to the company’s adjusted diluted earnings per share. Insight expects to see a 20-30 cent increase in adjusted diluted EPS just in the month of December, and expects an increase of 55-75 cents in adjusted diluted EPS in 2024.
Seasonality: SADA’s business is seasonal, with their biggest month in December. Insight says they did not want people taking the 20-30 cents of accretive value in December and annualize that number. SADA typically realizes a negative to low EBITDA during the first half of the year and the second half is where they realize most of their profitability.
Good Value: This transaction represents a strong financial value play for Insight as SADA historically recognizes $251 million of net revenue, $200 million of gross profit and $50 million-$60 million of EBITDA, which Insight anticipates maintaining in the future. Insight anticipates this acquisition will expand total gross margin by over 100 basis points.
Expanding Capabilities: As a result of this acquisition, Insight will increase its Google Cloud capabilities, with already strong exposure to Microsoft and AWS, SADA will enable Insight to further benefit from the growing trend of multicloud adoption, further strengthening its position as the leading solutions integrator.
Strong Cultural Alignment: Insight has detailed during the course of completing this transaction, it feels that SADA’s company culture aligns well with the existing Insight environment. SADA ran a full process for this transaction, and through the auction process and Insight’s pre-existing relationships with SADA, leadership through their GCP partnership, both parties feel that integration will be efficient and successful.
While every day, Channel Futures writes about mainstream mergers and acquisitions taking place among channel partners, the size of the SADA purchase by Insight is a once-in-a-lifetime deal.
There are few deals, if any, we can recall of this size when it comes to a closely held channel partner organization built and run by a single family. Insight is paying $410 million to buy SADA with cash and funds derived from an asset-based lending (ABL) facility. The SADA owners have the ability to earn an additional $390 million on top of that purchase price in earnouts and incentives from hitting specific financial goals.
At a possible peak of $800 million, that would make this deal one of the biggest single payouts for the founders of a partner organization in the history of the channel, instantly turning the Safoian family into one of the wealthiest in America. Certainly, SADA fetched a price way above what other partner organizations have attracted in the past few years.
Tony Safoian’s parents founded the firm and he has spent recent years building the organization into a cloud-focused partner that went from a multicloud strategy with AWS, Azure and Google, to one dedicated solely to Google’s Cloud offerings. Four years ago, the company sold its Azure practice to channel partner CoreBTS to focus solely on Google Cloud, where it received marketing, sales and strategic support from Google, which was looking to increase its channel presence.
The company was formed in 2000 by Annie Safoian and her husband Hovig, and in 2003 became a family-owned and operated company. The Safoian family emigrated to Los Angeles in 1987, making this an example of true American success story.
See our slideshow above for the long-lasting impact of this deal, more on why Insight wanted SADA, and thoughts from one of the preeminent M&A advisory firms on what makes this deal so important.
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