VARs: CDW Makes Value Play With Berbee Deal

CDW's planned acquisition of Berbee Information Networks

"CDW has been looking for ways to get out of distribution and into value-add," said William Brennan, president and CEO of Forsythe Solutions Group, one of the nation's largest regional solution providers. "It's a good move for CDW. Berbee is a very good company."

Under the acquisition deal, slated to close at the end of next month, Vernon Hills, Ill.-based CDW is buying Berbee -- a $390 million Microsoft, Cisco Systems and IBM-focused solution provider -- for $175 million in cash. CDW aims to leverage Berbee's services and solutions expertise to boost sales to high-end customers. Berbee, based in Madison, Wis., is focused on the Midwest, but CDW hopes the resources can be a springboard to offer higher-end solutions nationwide.

Brennan said he met with Berbee executives at the recent Cisco partner conference, and both Forsythe and Berbee believe the biggest issue facing VoIP solution providers was the dearth of technical talent necessary to continue to grow. Berbee has a great program for attracting hot technical talent from universities, he added.

"The good news for us is there is a lot of room in that space," Brennan said. "We are not demand-constricted."

Brennan said he doesn't foresee telephony margin pressure in the near term. "For now, this business is so fragmented," he said. "Companies in this space compete regionally. Berbee might be a good seed for CDW to grow this business."

CDW's move into the telephony space with the Berbee acquisition makes a lot of sense, given how Microsoft is pushing the convergence between PCs and VoIP, according to Brennan.

"Right now, we are not pitted against any one firm," he said. "The highway is so big that no one is crashing into each other. But we may someday."

CDW can better compete against solution providers on services if it's able to integrate two very different business models as it incorporates Berbee, said Wes Herschberger, CEO of MapleTronics, a Goshen, Ind.-based solution provider

"I don't see how the two complement each other. My initial reaction is that CDW is going to have a hard time making this work," he said.

Even with Berbee operating as a separate unit, the challenge of blending CDW's low-price reseller approach and Berbee's solution-selling approach is significant, Herschberger noted. "The Berbee model is to sell solutions around products rather than the products, whereas CDW's model is to sell as much product as possible," he said. "It makes sense, the more I think about it, but it's a big, big step. They are going to have a hard time merging the cultures."

The big question surrounds CDW's strategic plan, Herschberger said. "It makes me wonder what space CDW is going to end up in. Are they going to stay in the product reseller business or go more toward the services business? It will be interesting to watch this play out. Obviously, it is going to take some time."

MapleTronics has always considered CDW and Berbee as competittors, but Herschberger said he doesn't see a dramatically new competitive landscape.

"I don't see it as a larger or a smaller threat," he said. "It's an interesting combination. As a smaller VAR, we are both a product and a services company, blending the two together. We have been more of a [company like] Berbee. CDW might be seeing that as the better model."

Rick Kearney, president and CEO of Tallahassee, Fla.-based Mainline Global Systems, one of IBM's biggest solution providers, said he doubted the deal would impact margins for other IBM Business Partners because of measures IBM has in place to prevent poaching of accounts.

"Just because [Berbee] is better-capitalized than they were before doesn't mean they are more competitive than they were yesterday," Kearney said. "All of these publicly traded companies are looking for bulk, and solution providers are the new fad for better margins and access into new accounts.

"It's an interesting situation," he added. "IBM tried to keep a line between distributors and solution providers, but they made it a little gray with Agilysys. I guess CDW is saying, 'Me too.' "

STEVE BURKE, CRAIG ZARLEY, JOSEPH F. KOVAR and SCOTT CAMPBELL contributed to this article.