Acquisition Could Shake Up CDW's Winning Government Formula

What a difference seven years make. When a friend of mine worked at CDW in 2000, the company celebrated its first million. And here we are now, discussing the impact of a $7.3 billion buyout.

Whether the expected acquisition of CDW by Madison Dearborn Partners will have much of an impact on the channel giant remains to be seen. Certainly, executives are making out pretty well -- the $87.50 per share price tag will result in $16 million for John Edwardson, CDW chairman, and $987 million for founder and chairman emeritus Michael Krasny. Recent reports show no anticipated layoffs as a result of the acquisition, and Wall Street numbers are strong; the stock price jumped more than seven points when news of the acquisition broke Tuesday.

So for now, the buyout seems to bode well for the financial health of CDW as a whole. But what about government, the company's bread and butter?

CDW's public sector arm is a force, thanks to a melding of market knowledge, an enormous portfolio of products and some of the most competitive pricing in the channel. Whether that triad remains intact depends on how hungry the new ownership is for growth, and how lacking the new ownership is in knowledge of the government channel.

While I expect business as usual for the most part, there might be some temptation to up prices in an attempt to grow revenue. For certain segments of business, that might prove successful enough. As long as a price increase was kept relatively conservative, the company's commercial business could survive just fine -- and probably deliver on expectations for increased revenue without harm to market share.

But the government business is another story. Price weighs far heavier in the formula to win deals, thanks to Uncle Sam's rules of "best value" purchasing. Even the slightest markup could land CDW-G in pricing territory that competes more directly with other midlevel VARs -- bad news for CDW-G, good news for the solution provider that consistently lose orders on price to the channel giant.

We'll just have to wait and see whether the new ownership knows enough to stay out of management's way.