FusionStorm, Sun Microsystems' largest West Coast solution provider and one of the largest U.S. VARs, has acquired Jeskell, IBM's biggest government solution provider, creating a $400 million channel powerhouse.
Under the deal, terms of which were not revealed, Jeskell becomes a subsidiary of San Francisco-based FusionStorm. Javed Kahn, president and CEO of Jeskell, will continue to run Jeskell as president.
The Jeskell acquisition is the latest and largest in a string of acquisitions by FusionStorm, and FusionStorm CEO John Varel said that activity will continue over the next few months.
Both companies have enjoyed strong growth over the past few years and are profitable, Varel and Kahn said.
Key to the future success of the Jeskell acquisition will be keeping the two entities separate, which shouldn't be difficult because the two companies have served different markets, according to Varel.
FusionStorm is focused almost exclusively on the commercial space and has no government business. Almost all of its business is related to the Sun platform, with just a small amount of business coming from IBM pSeries server sales, Varel said. With the Jeskell deal, FusionStorm purposely didn't look to buy an IBM solution provider in the commercial space, which would have conflicted with its Sun business, he noted.
"We don't want to do anything to damage our Sun business," Varel said.
FusionStorm also is one of the nation's biggest Cisco Systems solution providers and is one of the 50 to 60 Cisco Gold-certified partners, Varel said. Of FusionStorm's $230 million in annual revenue, about $110 million comes from Sun business and $70 million comes from Cisco business, with less than 1 percent coming from IBM, Varel said.
Jeskell, on the other hand, got all of its fiscal year 2006 revenue of $132 million from sales of IBM products and services to the government and education markets, according to Kahn.
Keeping the FusionStorm and Jeskell businesses separate reduces the risk of a key problem associated with failed acquisitions, Varel said.
"After doing several acquisitions and after consulting with friends that have done acquisitions, I found the No. 1 reason an acquisition fails is that the first company pushes its culture on the second company," he said. "I, in no way, will do this. There will be no cross-selling between the two entities."
As a result, the FusionStorm business won't pursue government opportunities and the Jeskell subsidiary will stay out of the commercial space, Varel noted. FusionStorm also will transfer its small IBM business to Jeskell, he added.
A big part of the acquisition, though, is related to Cisco. Jeskell has no Cisco business but has been looking to bring Cisco into its IBM government accounts, Kahn said. As part of FusionStorm, Jeskell will get the Cisco access it couldn't attain in the past because it waited too long to get certified, he said.
"Like anything in life, when you start late, you get chopped by the big guys," Kahn said. "We didn't have leverage like the big guys."
Jeskell also will get access to FusionStorm's professional services arm, as long as it's in such areas such as WAN, security and Cisco services, where FusionStorm doesn't compete with IBM, Varel said.
Looking at the solution provider channel overall, Varel said the Jeskell acquisition reflects a continuing consolidation trend.
"We're seeing that customers want the value proposition of working with larger companies, and vendors want the value proposition," he said. "It's a win-win for everybody, even smaller companies. If they get acquired, they get the support of vendors that they couldn't get before."
Varel should know. His company has a list of acquisitions. In November, it acquired the Sun Software business unit of Orinda, Calif.-based Intraware, which sold about $20 million in SunOne software to 1,700 new customers. In July 2005, FusionStorm acquired BMD Solutions, a security solution provider with offices in Los Angeles and Las Vegas.
And the previous March, FusionStorm hired a dozen salespeople and a few engineers from Marathon International, Sunnyvale, Calif., which gave FusionStorm a presence in Boston, where many of those employees were based. FusionStorm also acquired CAT Technology in 2003.
By focusing on companies with a single product or technology focus, FusionStorm has been able to increase its value to customers, Varel said.
"Our per-customer sale has doubled in the last year. That's an average across all customers, not just the top 10. And the number of customers we serve is up 25 percent," he said.
And FusionStorm is far from finished in terms of doing its part to consolidate the channel, Varel added.
"I hope you will see two or three more acquisitions from FusionStorm by year-end," he said. "I'll be at a half-billion dollars [in annual revenue], and I expect to double that within two to three years. That's a promise."