Agilysys Goes Shopping, Picks Up Stack Computer
The deal, announced Monday, comes on the heels of Agilysys' sale of its distribution arm, KeyLink Systems Group, to Arrow Electronics for $485 million in cash.
When the sale of Keylink was announced earlier this year, Agilysys executives said they would be looking to make acquisitions in several key areas, and it has started the spree with the EMC storage solution provider.
"Stack is the first of what we think will be a number of complementary acquisitions to the business," said Martin Ellis, executive vice president and CFO at Agilysys, Boca Raton, Fla.
"Our business today has three components: hospitality solutions, retail solutions and technology solutions. Stack fits into our technology solutions business. We will be looking for targets similar to Stack that bring strong customer relationships to potentially fill out a geographic spot like Stack does," Ellis said. "One of the things we're looking at are services acquisitions."
Stack gives Agilysys a presence on the West Coast and will be absorbed into Agilysys while retaining all personnel, according to Ellis.
"They have a very strong reputation, particularly on the West Coast, as being a storage and systems integrator. They have a strong bench of technical folk that have a good reputation in the industry for working with larger customers. They have a strong relationship with EMC, as do we, and so they complement our EMC relationship," he said.
The EMC businesses of both companies will become a single business unit, he added.
John Orr, president of Stack, will stay on as vice president and general manager at Agilysys.
"I've signed up for another 10 years," he said. "There have been 25 attempts to acquire us. This is the 26th attempt. A big influence for us to finally do this is the role Agilysys wants me to play. This is not about me cashing out."
Orr said Stack is one of only a handful of Cisco's elite Advanced technology partners focusing on the company's WAAS (wide area application services), ACE network virtualization, and MDS SAN products.
Bob Bailey, executive vice president of Agilysys, said that his company is looking for Orr and his organization to lead the company's EMC and Cisco business.
"We already have a very good EMC business, one we started a year ago," Bailey said. "We have good traction. We're looking to John and his experience to grow even more. And Cisco is an area where we as a company can grow. We now have a small Cisco business, and John's is bigger. We're looking to change this in the future."
Stack is one of EMC's largest solution providers. It had also been Hewlett-Packard's largest server partner, but in early 2003 the company saw its HP relationship terminated "without a cause" after Stack president John Orr publicly criticized the vendor's policies at a partner conference.
Solution providers at the time said the real reason for the termination was Stack's strong EMC relationship, as Stack typically attached EMC storage, not HP storage, to HP server sales.
One California-based HP solution provider, who asked to remain anonymous, said it will be interesting to see how the Stack acquisition will play out, given Stack's history with HP.
"I don't think the local HP team will embrace Stack with open arms," the solution provider said. "I think they will still be viewed as the enemy."
Ellis said he did not foresee any complications in the relationship between HP and Agilysys as a result of the acquisition of Stack.
Solution providers doing business in California said they have little to fear from Agilysys moving into the western United States via Stack.
"However, this will add a layer of overhead to Stack because they're now part of a larger corporation," the solution provider said. "They won't be as nimble as before."
Dave Butler, president of Enterprise Computing Solutions, a Mission Viejo, Calif.-based solution provider with a strong HP focus, said he expects no impact to his business from the larger Agilysys.
"Stack has been out of the HP business for years," Butler said. "They've been focusing on their EMC and Veritas business, while we've been dedicated to HP. Their customers are not our customers. John [Orr] now has the opportunity to sell the same products we do. But he'd have to be turning over rocks to get into my accounts."
Instead of increasing the competition for current solution providers, Agilysys may be looking to take advantage of the huge southern California market, Butler said.
"The L.A. market is huge," he said. "I can see consistent platform competition between, say, HP and IBM. But if I go to 10 deals, I'm competing against eight different partners. I see a bunch of resellers doing their $10 million to $15 million business. The market is not mature until you see them compete on a day-to-day basis."
Butler said one thing he found unusual about the acquisition of Stack is that it does not seem to be much of a services play, noting that only 11 percent of Stack's revenue comes from services, according to Agilysys.
"I'm surprised Stack's services business is only 11 percent of revenue," he said. "Most of the mergers I've seen focus on companies more in the services side. We've seen a lot of companies call us up looking to acquire us for the services component. It could be their strategy is to acquire EMC resellers."
Orr said that 11 percent figure is misleading. "Our business model is a services-led organization," he said. "Our go-to-market strategy with EMC and Cisco is to lead with services regardless of whether we do it ourselves or via our partner. The end-result is, we are a services-led organization. Our hardware sales are a result of our services business."
The anonymous solution provider said it will be interesting to watch what Agilysys does next with the money it received after selling its KeyLink Systems Distribution Business to Arrow Electronics.
"I wonder what else Agilysys has up their sleeves," the solution provider said. "They got their half-billion dollars yesterday."
Bailey said Agilysys is certainly looking to acquire other solution providers regardless of whether they are an EMC partner or not. "We're really looking for the services, how they fit our customer relationships, and the value we add to all our suppliers including EMC," he said.