Despite Rocky Economy, FusionStorm Files IPO

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Despite uncertain economic conditions and stubborn unemployment figures hovering around 9.1 percent, a few tech companies are feeling confident enough to launch IPOs. Among them is IT solution provider FusionStorm.

In August, FusionStorm, #51 on CRN's VAR500 listing of the top 500 solution providers in North America, said it would sell up to $175 million of common stock to pay for the acquisition of two other companies -- Global Technology Resources and Red River. The newly formed FusionStorm Global would provide end-to-end technology services and support.

"FS, GTRI and Red River have had low gross profit margins historically, and their past growth in net income has been fueled primarily by increased sales volume rather than increased gross profit margins. Given the significant levels of competition that characterize the IT reseller market, it is unlikely that we will be able to increase gross profit margins through increases in our sales of IT products alone," according to the filing with the Security and Excange Commission. "Any increases in our gross profit margins in the future will depend, in part, on the growth of our higher margin businesses such as IT consulting and professional services."

FusionStorm's recent history has been turbulent. A few years ago, revenue plunged to $12 million, and the board of directors recommended the company file for bankruptcy. The company under CEO John Varel persevered and reported approximately $460 million in 2011 revenue. Last summer, FusionStorm was sued by San Diego-based solution provider TIG after allegedly stealing TIG employees and business secrets during the process of setting up a Tampa branch office. FusionStorm was found guilty in a California jury trial, and settled the case in August for a total of nearly $11 million.

FusionStorm joins only a handful of other tech companies, notably Carbonite, on an IPO course. Companies are facing numerous challenges: a lackluster economic picture, a stockmarket on a rollercoaster ride and banks that are increasingly hesitant to lend capital. According to Thomson Reuters Deal Intelligence, announced merger and acquisition deals in the third quarter of 2011 have declined roughly 23 percent from the second quarter.

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