Sirius On The Prowl For Acquisitions As Kelso Preps To Buy Majority Stake

IBM mainstay Sirius Computer Solutions plans to double down on mergers and acquisitions after a planned injection of capital from private equity giant Kelso & Co.

New York-based Kelso announced its intent to buy a majority stake in the San Antonio, Texas-based company, No. 28 on the 2015 CRN Solution Provider 500, replacing current owners Thoma Bravo and Harvey Najim, who will retire as chairman 35 years after founding Sirius.

Kelso's 10-year investment will make it possible for Sirius to be more aggressive on acquiring firms with expertise in converged infrastructure, networking and services, Joe Mertens, Sirius' president and CEO, told CRN.

[Related: Sirius Computer Solutions Acquires Varrow For Technology, Geography]

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"We believe our industry needs to consolidate," Mertens said, adding that Kelso's presence should help ensure that Sirius is the acquirer rather than the acquiree. "We believe clients are looking for larger, more capable partners."

Financial terms of the deal, which is expected to close this fall, were not disclosed. Although Kelso's fund for Sirius is designed to last a decade, Mertens said private equity firms typically don't hold onto investments for any longer than five years. Kelso and Thoma Bravo -- which has held a stake in Sirius since 2006 -- did not immediately respond to requests for comment.

Sirius has been active in the M&A market over the past year, picking up virtualization and cloud solution provider Varrow in April and 60-person analytics firm Brightlight Consulting last October.

Mertens said he hopes Sirius will continue on a pace of at least two acquisitions a year under Kelso, with a focus on bolstering its managed services, software services, Cisco-based networking products and converged infrastructure offerings across multiple vendors.

Before buying Brightlight, Sirius hadn't made an acquisition since November 2010, when it purchased services provider MSI Systems Integrators.

Sirius also plans to use Kelso's money to invest more heavily in its own capabilities around managed services and IBM software services. Although Kelso doesn't have much background working with IT service providers, Mertens said some of its 110 investments have been in data center-oriented firms.

Mertens -- who has led Sirius since 2008 -- plans to stay on as president and CEO, and said the company's management structure will remain intact with the exception of Najim's departure. Sirius likely won't get a new executive chairman to replace Najim -- who Mertens said hasn't been involved with the day-to-day operations for several years -- though the company will definitely have a board chairman.

The solution provider began on-and-off talks with Kelso in 2012 as Thoma Bravo's 10-year investment neared the end of its life. Thoma Bravo has been very active over the past year, taking Compuware private in September and completing a joint, $3.5 billion acquisition of Riverbed Technology in December.

Sirius ultimately determined that Kelso would be the best strategic and cultural fit, Mertens said, since the private equity power has been committed for decades to partnering with strong management teams and letting those teams run the business with very minimal interference, he said.

Sirius' management team will retain a minority ownership stake in the firm, Mertens said.

Sirius has gotten much bigger under Thoma Bravo's stewardship, doubling annual sales from just $600 million in 2006 to $1.2 billion in 2013. Revenue climbed even further, to $1.4 billion in 2014, and is expected to hit $1.6 billion this year, the company said.

Historically one of IBM's largest channel partners, Sirius has over the past decade diversified both its vendor partners and geographic reach, according to an analysis from MartinWolf, a global IT mergers and acquisitions investment adviser.