MSP: CDW Acquiring Sirius in Response to Tech Data-Synnex Merger

By Edward Gately and Allison Francis

CDW acquiring Sirius Computer Solutions for $2.5 billion is its response to Tech Data merging with Synnex in September.

That’s according to Kenny Riley, technical director at Velocity IT, a Texas-based MSP. CDW announced the acquisition on Monday.

The acquisition accelerates CDW’s service and solutions capabilities. Moreover, it will enhance capabilities in key growth areas. Those include hybrid infrastructure, security, digital and data innovation, cloud and managed services.

In addition, it will increase opportunities to deepen customer relationships and expand customer reach.

Riley said this acquisition puts CDW “head-to-head” with TD Synnex in the distributor sector in terms of size.

“This news doesn’t affect us or our buying patterns, as we tend to get more competitive pricing by working directly with our account managers from the manufacturer rather than going through distributors such as CDW and [TD Synnex],” he said.

CDW-Sirius Pairing Won’t Harm MSPs, MSSPs

Bendix is a South Dakota-based MSP. Jeff Bendix, its president and CEO, said the acquisition is a “wise move and the natural evolution” of CDW’s business model.

Bendix’s Jeff Bendix

“We all know it is easier to sell more to your existing clients than to gain new clients,” he said. “This will help CDW accomplish that. However, there is a certain market segment that this type of service will work for. I do not believe most MSPs or MSSPs should have any concerns as their clients generally prefer a much deeper relationship with their IT provider, knowing their environments inside and out, having personal relationships with people, having local, responsive, hands-on service. Those are things CDW simply cannot provide, especially at scale.”

Marc Umstead is president of Plus 1 Technology, a Pennsylvania-based MSP. He said this acquisition is an example of the consolidation taking place in many industries.

“In many industries, companies are using consolidation to take advantage of scale to maximize productivity and margins,” he said. “This is another example of how smaller firms should be using their smaller size as an advantage. Smaller firms can pivot quicker, provide industry specific solutions, and provide a customer experience that companies operating at this scale simply cannot.”

Carl Fransen is founder and CEO of CTech Consulting Group, an Alberta, Canada-based MSP.

CTech Consulting Group’s Carl Fransen

“This is a very strategic move by CDW to get on board with the direction of the modern technology,” he said. “Previously, selling hardware and software was enough to keep up with the Ingram Micros and the newly merged TD Synnexes of the world. But as technology moves to toward solution selling, this will enable CDW to compete.”

The Big Are Getting Bigger

John Holland is managing director of Corporate Finance Associates (CFA). The firm tracks M&A in the technology services industry.

“It’s a significant transaction, because one of the largest North American IT channel players just grew its top line sales by over 10% with this acquisition,” he said. “The big are getting bigger in search of economies of scale. A similarly large acquisition took place in 2019 when Insight acquired the publicly traded, billion-dollar IT solutions firm PCM for sheer scale. The IT channel is consolidating, and that consolidation provides the larger players with …

… certain advantages vis-a-vis the smaller resellers. However, as CDW integrates Sirius, there will likely be some opportunities in certain regions for smaller resellers to gain market share as clients who bought from CDW and Sirius search for a secondary or backup suppliers.”

By its sheer scale, CDW is a dominant force in the North American IT channel, Holland said. However, managed services represent a very small share of CDW’s total revenue.

Moreover, CDW said the Sirius acquisition will elevate its annual combined service revenues to $1.3 billion out of total, combined revenues of $20.5 billion.

CFA’s John Holland

“Therefore, service revenues will represent only 6.3% of CDW’s total annual revenues,” Holland said. “Absolutely managed services are lucrative. CDW’s acquisition of Sirius will boost CDW’s gross margin by 110 basis points.”

No Surprise CD&R Is Selling Sirius

It’s no surprise that Clayton, Dubilier & Rice (CD&R), the private equity firm that owns Sirius, is selling the company to CDW, he said.

“Private equity firms like CD&R typically hold companies for three to seven years,” he said. “CD&R acquired Sirius in April 2019 for $414 million and then backed Sirius on two acquisitions. It is not unusual for a private equity firm like CD&R to hold a company for such a relatively short period of time. CD&R recently sold another IT company, the IT consultancy Capco. Interestingly, CD&R and the private equity firm KKR just acquired hybrid cloud solutions firm Cloudera for $5.3 billion as they took Cloudera off of the New York Stock Exchange. Perhaps CD&R feels more conviction about investing into cloud solutions than in diversified IT solutions.”

More Billion-Dollar M&A On the Way

More multibillion-dollar M&A in the IT services industry is coming in the near future, Holland said.

“First, low interest rates fuel acquisitions,” he said. “Although interest rates are likely to climb over the next few years, they will be low enough to propel large acquisitions. Second, the high current valuations of companies such as Amazon, Microsoft and Palo Alto Networks suggest that the capital markets have a huge and seemingly insatiable appetite for high-growth IT businesses, especially businesses that provide cybersecurity and cloud solutions.”

Third, there are some large, publicly traded European and Asian IT solutions companies that are interested in expanding in the North American market, Holland said. The United Kingdom’s largest reseller, Computacenter, acquired a large Canadian IT solutions firm called Pivot Technology Solutions last year. In addition, over the past couple of years, publicly traded, multibillion-dollar Swiss reseller SoftwareOne has executed multiple acquisitions in the United States.

“Fourth, over the past few years, a few billion-dollar IT solutions firms have migrated from the public equity markets to private equity,” he said. “Since private equity firms tend to have relatively short investment horizons, it is likely that the private equity firms that acquired these large IT services firms will sell or take public such companies in the next few years. Lastly, Office Depot announced many months ago its desire to sell Compucom, a large reseller that it acquired for roughly $1 billion in 2017. Therefore, I would expect one of the large IT services firms to acquire CompuCom eventually.”