Storage VAR Merger: Datalink Buys MCSI For $14M

Datalink is doing its part to continue the consolidation of the solution provider market with its acquisition of Midrange Computer Solutions Inc. (MCSI).

Datalink, one of the country's few publicly listed solution providers, said on Thursday that it acquired Chicago-based MCSI for $14 million, including $5 million in cash and $9 million in Datalink stock.

Both Datalink and MCSI are storage-focused solution providers, which is one of the main reasons Minneapolis-based Datalink acquired MCSI, said Charlie Westling, Datalink president and CEO.

The two companies have little overlap, making MCSI a good fit for Datalink to expand, Westling said. For instance, while both have offices in the Midwest, MCSI's 14 branches include a strong presence in New England, the Ohio Valley, including Cleveland and Cincinnati, and the West Coast, all of which are underserved by Datalink, he said.

Even where the two do overlap, there are benefits to the acquisition, Westling said. For instance, by adding MCSI's 65 employees to Datalink's 160 employees, the company immediately grows its field sales and engineering organization by a third.

"This gives our customer community access to more talent," he said. "And it gives us a bigger impact with our vendors."

Vendorwise, the two also mesh very closely. Both companies count Sun Microsystems StorageTek, EMC, Symantec and IBM as partners, while Datalink plans to bring its Hitachi Data Systems and Network Appliance relationships to MCSI's customers, Westling said. "This is an opportunity to leverage our common partners and bring new products to the other sales force," he said.

The acquisition of MCSI is only the latest in a string of recent solution provider acquisitions.

Unlike some of the acquisitions in the past year or so in which vendors or private equity companies acquired VARs, Datalink's acquisition of MCSI is a rather straightforward move to bring two complementary solution providers together, Westling said.

The acquisition was done with internal Datalink resources, and no outside funding was necessary. "Through the nine-month period ending in September, we had about $22 million in cash on our balance sheet and no debt," he said. "We were easily able to fund with our own resources."

Datalink has made only two other acquisitions, one in 1998 and one in 2000, Westling said. However, he said the company will take advantage of any "strategic opportunities" that may come along.

"The reality in the marketplace for VARs and integrators is, you need to continue to invest in skills and have the market reach," he said. "This leads to consolidation. We will continue to look at strategic opportunities. We've done very well growing organically."

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