CDW To Be Bought By Private Equity Firm


CDW has agreed to be acquired by a private equity company for some $7.3 billion in cash.

The Vernon Hills, Ill.-based online retailer and solution provider late Tuesday said that Madison Dearborn Partners, a Chicago-based private equity firm, will pay $87.75 in cash per share for CDW stock, which is about 16.1 percent over CDW's closing price on May 25.

However, the acquisition might not be a done deal.

Madison Dearborn Partners was one of a number of bidders in an auction conducted by CDW's board of directors, according to CDW. As part of the acquisition agreement, CDW, along with Morgan Stanley, will actively solicit proposals from other potential suitors for the next 30 days.

CDW is only the latest in a string of solution providers to be acquired by or get investment from private equity firms.

In April alone, Affiliated Computer Services said that investment fund Cerberus Capital Management helped take the solution provider private in a $5.9 billion buyout. The same week, CRN learned that solution providers Presidio and Solarcom were merging to form an $800 million mega-VAR named Presidio Networked Solutions.

The level of private equity investment in the channel is increasing as investors increasingly see the channel as a fragmented business ripe for consolidation, investors told CRN late last year.

Reaction from CDW's peers in the channel has been mixed.

One executive at a large solution provider thought the move could turn out well for other channel players.

"Private equity companies don't buy companies to just run up sales. They are looking for return on the dollar," said Bruce Geier, president and CEO of Technology Integration Group, a solution provider in San Diego. "I think some of the tactics CDW uses, such selling at or below costs to penetrate accounts, to go after larger businesses, then making money later on rebates or whatever, that may go away. Now they have to make a profit, so [aggressive pricing] may not be as blatant as we have seen in the marketplace. Lately we've seen CDW become more aggressive in the market and that's probably because they have been talking to people and they are trying to drive up their price [value of the company]. This could be good thing for the channel."

Dave Jordan, president of Pacific Computer Consultants, a Pleasant Hill, Calif.-based MSP, said he has some trepidation. "I don't do a whole lot of business through them, but I have clients that do, and they're just a top-notch professional service," he said. "It's like the whole Lenovo deal with IBM. People will have some trepidation about whether the service levels will remain the same, so we'll see."

Perry Dearaway, vice president of sales at Verge Technologies, a San Jose, Calif.-based VAR in the network securities space, said that CDW has a reputation of being an order-taking, non-value adding organization.

"So what happens to us is, occasionally we'll do some demand creation and then the customer will go to some $12-an-hour clerk who's able to do the same thing you created the demand for and suddenly your margin dwindles away to nothing. Put it this way, I don't have a lot of love in my heart for CDW or Dell."

Either way, the deal makes sense from a private equity perspective, said Mike Carter, managing director at The Musser Group, a Wayne, Pa.-based firm that bought into solution provider InfoLogix.

"I think it makes a lot of sense in the private equity world that companies with such a high revenue base, higher customer count, high partnership levels with different [vendors] would make a solid partner [for an equity firm], especially with their cash flow," Carter said.

He added that equity firms look for companies that have strong hardware revenue but where strong services opportunities also exist. CDW fits that to a tee, he said.

"I see a lot more activity in this channel. It makes a ton of sense because this whole category has cash flow and a customer base to leverage," Carter said.

--With additional reporting by Damon Poeter, Craig Zarley and Scott Campbell.