Changing Channel Fuels Consolidation

Norwood, Mass.-based solution provider Elcom International recently sold its IT product and services business to ePlus, Herndon, Va. Sources valued the deal at between $30 million and $40 million. And just last month, PC Connection, Merrimack, N.H., bought e-procurement supplier MoreDirect for $60 million.

As a subsidiary of PC Connection, MoreDirect will have access to additional capital, marketing programs, inventory and logistics capabilities and other resources, such as PC Connection's overnight custom-configuration service.

"The acquisition of MoreDirect is consistent with our strategy of acquiring businesses that give us the opportunity to reach new market segments," said PC Connection CEO Ken Koppel in a statement.

Meanwhile, there's talk that CDW Computer Centers, Vernon Hills, Ill., may be sizing up Dallas-based CompuCom Systems for an acquisition, sources said.

"I think you're looking at a change in the channel that is greater than anyone ever imagined," said Marty Wolf, CEO of Martin Wolf Securities.

In the past 52 weeks, CDW shares have ranged between $28.35 and $60 and are now in the $50 range. Wolf believes CDW's stock price has been rising due to speculation about a future acquisition. CompuCom stock recently closed just shy of its 52-week high of $3.84 per share and in one week jumped nearly 10 percent.

Elcom CEO Bob Crowell said the lagging economy is also a catalyst for consolidation because as companies cut discretionary spending, solution providers' revenue was dramatically impacted. While solution providers are struggling, direct marketers such as Insight are thriving, added Crowell.

Solution providers have to differentiate themselves by the value they offer because the products, prices and services available in the market are virtually the same, Crowell said.

"It's a complete matrix channel,everybody is selling to everybody," said Crowell. "VARs have to find something to [offer their customers as a value-add."

En Pointe Technologies is another solution provider likely to go out of business if it is not acquired, Wolf said. The company is valued at $9 million, and sales fell 37 percent last quarter.

"The market says [En Pointe is not going to survive," Wolf said.

As the economy improves, Wolf said, large solution providers will become more adept at serving their large customers and competing with vendors' direct-sales teams, while smaller solution providers will concentrate on niche services.