Large VARs are getting larger.
The wave of channel consolidation continued as INX Tuesday revealed it has acquired fellow Cisco Systems Gold partner Select in an $8.5 million deal.
Through the acquisition, which closed on August 31, Houston-based INX is pushing into the Northeast and expanding its Cisco unified communications business and its storage practice.
Terms of the deal call for INX to pay $6.25 million in cash and $2.25 million in INX common stock for Select. INX also picked up the $2.7 million in cash on Select's books when the deal closed. INX will pay additional earn-outs valued at $2.4 million if revenue and operating profit contribution goals are met over the next two years.
INX is one of several channel partners to snap up peers as part of its growth strategy. Also Tuesday, San Antonio-based IBM partner Sirius Computer Solutions acquired Strategic Computer Solutions, an IBM partner in Syracuse, NY. Terms of that deal were not disclosed.
In recent months, Cisco channel partners in particular have been attractive targets as VoIP and unified communications solutions continue to gain in popularity. San Francisco-based Fusion Storm in August bought Technology Services and Integration, a Cisco VoIP partner in Glendale, Calif., while Cisco Gold partner Presidio, Greenbelt, Md., acquired Gold partner Solarcom, Norcross, Ga., earlier this year.
Select, a 20-year old VoIP, storage and networking integrator in Canton, Mass., brings with it a stable of marquee enterprise accounts in the Boston area and approximately $40 million in annual revenue, said Jim Long, chairman and CEO of INX (VARBusiness 500 rank No.173), during a conference call.
Its customers include Blue Cross Blue Shield Association, John Hancock and TD Banknorth, according to Select's Web site.
Long said the deal will help further INX's growth through both geographic and technology portfolio expansion.
"This acquisition does accomplish both of our major acquisition strategies: It puts us into a major region in the U.S. with a substantial presence and also adds substance to our network storage practice," he said, adding that Select has a strong business with storage vendor Network Appliance.
It also bolsters the solution provider's VoIP practice. INX is already one of a handful of channel partners to have earned Cisco's recently launched Master Unified Communications specialization.
Dana Zahka, founder, president and CEO of Select, is joining INX as regional vice president for New England.
Select is the fifth solution provider INX has acquired over the past four years. Previous purchases include Digital Precision in 2003, Network Architects and InfoGroup Northwest in 2005 and Datatran in 2006. INX currently has several other acquisitions underway, with one likely to close in the fourth quarter, Long said.
"Internally, our goal is to get one deal per quarter done," added Mark Hilz, president and COO of INX.
The current subprime-lending problems impacting the financial community are actually helping clear the way for INX to pursue acquisitions, Hilz said.
"One of our concerns was that private equity would get into this market and start being a competitor on acquiring smaller companies," Hilz said. "We look at this as an opportunity, that maybe some potential acquirer competitors are going away in this market and we can get out there and aggressively pursue the candidates with less competitors going after each deal."
Like many of its peers, INX, which reported $156 million in sales for 2006, is using acquisitions to grow revenue, add technical expertise and gain standing with large customers and vendors.
"Just being bigger helps win bigger deals. We've seen that across the board in all of our regions," Long said. "A $40 million company [like Select] trying to win a $20 million transaction, it's just a big deal for them to swallow that transaction. Customers are looking at that, and I think Cisco is looking at that."