Can CDW Pull It Off?

Will CDW be able to transform its product sales juggernaut into a services powerhouse? That's the bet the Vernon Hills, Ill., company made last week with its acquisition of Berbee Information Networks, a $390 million Madison, Wis., solution provider.

At first blush, it certainly seems like a smart move. With the $175 million cash buy of one of the premier IBM, Cisco and Microsoft enterprise solution providers in the country, CDW immediately acquires expertise in server consolidation, virtualization, VoIP and unified communications. What's more, CDW gains a robust managed services and hosting business out of two Midwest data centers and more than 300 billable engineers working at customer locations.

CDW Chairman and CEO John Edwardson said he intends to use the services muscle and expertise Berbee has developed in enterprise accounts and drive those solutions down into CDW's base of SMB accounts.

"We do want to move into new geographic areas," Edwardson said, noting that the plan is to double Berbee's revenue through organic growth in five years. "If you go into any city in the U.S., and you can pick any of the larger ones, we are doing business with thousands of customers in the city that we can introduce Berbee to. We will grow both organically and by acquisition in the Berbee operation."

Added Berbee CEO Paul Shain: "What we see today is that technologies that start in the enterprise space are quickly getting sized and priced and packaged by the manufacturers to work in the SMB space. So the strength of CDW's relationships in the SMB space with some of the evolving solutions coming out of the manufacturers combined with our capabilities on the implementation side are very attractive to us."

While CDW vowed to spread Berbee's regional enterprise-oriented solutions and services model to its thousands of SMB accounts across the country, competing solution providers expressed both trepidation and doubt.

On one hand, solution providers, notably Cisco partners, fear the merger may threaten their margins. Others noted the difficulties the companies will likely encounter in trying to blend the volume-oriented culture of CDW with Berbee's value model.

Challenges aside, earlier this year Edwardson sent a letter to shareholders saying he expects CDW to be a $10 billion company by 2008. Given that CDW reported $6.3 billion in sales in 2005 and analysts expect sales of $6.7 billion this year, most observers believed reaching that goal would have to include acquisitions.

NEXT: Vendor and VAR reaction to the deal.