Insight-Calence Deal Has Many VAR, MSP Ramifications

"I want to highlight that one of the things Inisght doesn't have today is managed services capability. Many clients are looking for managed services arrangements for their networks," said Rich Fennessy, CEO of Insight. "They're looking at companies like Calence to come in and run their networks in a more efficient manner."

Fennessy noted that Calence has about 120 employees focused on managed services and that Insight can now provide those services to its existing customer base of 33,000 customers. Calence has 1,500 clients, Fennessy said. He could not say how many clients Calence provides managed services for, but he said the company manages 25,000 nodes.

"Another nice aspect is that we can take that managed services offering to an international level," Fennessy said. "They have one client managed in 40 countries around the world. We expand in those markets, we will able to do it in a quick manner."

Insight sells networking products only to about one-third of its 33,000 customers, which do not see the company as a primary networking supplier, Fennessy said. That should change with the Calence acquisition, he said.

"Talk about cross-selling opportunity with what they bring to the table," Fennessy said. "And none of [Calence's 1,500 customers] are buying software or hardware outside the networking area [from Calence]. This is a very strategic acquisition."

Insight, along with its chief competitor CDW, clearly see that the future involves both a high-touch solutions and services model and a low-cost products procurement option, according to Brian Alexander, senior vice president of equity research at Raymond James and Associates.

CDW agreed to purchase IBM and Cisco VAR Berbee Networks in September 2006 and has made strides in cross-selling products and services to new customers. "Insight has this view of becoming a global VAR. In the networking space they were lacking high-end capabilities and services capabilities. Independent of CDW, this is consistent with their strategic direction," Alexander said. "This goes to show that being just a direct marketer or just a VAR is probably not the way to go. I think you need to offer the solutions capabilities of a VAR combined with the efficient logistics engine of a DMR to compete effectively."

Insight, once regarded as a product source for SMB companies, has transformed the company through three acquisitions in the last five years. In 2002, the company bought corporate reseller Comark to reach into the enterprise space and it significantly upgraded its software business with the 2006 purchase of Software Spectrum, a large Microsoft VAR. With the purchase of Calence, Insight fills its biggest void -- networking -- in the marketplace, Fennessy said.

"We spent a lot of time looking [at networking VARs]. One of our strategies was to do it on a national level with Cisco as a partner. Having that as a criteria, it was a much smaller universe to go after. Calence fit that role perfectly," he said.

Calence has 20 offices in 18 states and Insight will look to expand that local reach over time, Fennessy said, but he is unsure if expansion would be organically or through future acquisitions.

"The good news is Insight had a $350 million networking business before the acquisition. We're in a lot of markets they're not in. We're very strong in Chicago for instance," he said.

Calence CEO Mike Fong could not be immediately reached for comment. Fennessy said the two companies started talking more than 6 months ago and that Calence has always had the vision to be the "largest network systems integrator" in the United States.

Calence was founded in 1993 but went through a spin-off/merger two years ago when it picked up some of Avnet's single-tier reseller business. Avnet owns 62 percent of Calence, according to Fennessy, but the distributor will not have a favored supplier relationship with Insight going forward, he said.