Insight CEO: Buying Datalink Will Give Us Services Boost, Foothold With Next-Gen Vendors Pure, Nimble and Nutanix

Insight Enterprises CEO Ken Lamneck said buying Datalink will boost services revenue by more than 50 percent and establish relationships with next-generation data center vendors Pure Storage, Nimble Storage and Nutanix.

The Tempe, Ariz.-based company, No. 15 on the 2016 CRN Solution Provider 500, expects the $258 million purchase of Eden Prairie, Minn.-based Datalink, No. 45 on the 2016 CRN SP 500, will accelerate data center services growth, creating the leading data center solution provider in the marketplace, Lamneck said.

The services boost includes Datalink's highly regarded OneCall around-the-clock technical support offering, which is the largest portion of the company's services revenue with overall gross margins in the services business of 30 percent.

"We will ultimately drive growth and expand gross margins by increasing our services sales, and leading with higher-growth and higher-margin product categories," said Lamneck in a conference call with Wall Street analysts.

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Datalink has a tighter bond with next-generation data center providers like Pure Storage, Nimble Storage and Nutanix, said Lamneck. "They've got some really strong partner relationships with a lot of the up-and-coming vendors that we look to really capitalize on," he said. "As the technology keeps shifting, Datalink is very well-positioned to capture more of that business."

More than 450 of Datalink's 570 employees are in client-facing roles, Lamneck said, such as field engineers, architects and service delivery professionals.

Datalink's sale to Insight came as the result of an auction process, said Insight CFO Glynis Bryan, declining to elaborate further. The acquisition is expected to close in the first quarter of 2017, with Datalink required to pay Insight a $7.5 million termination fee if the deal doesn't close by April 25 or if Datalink fails to obtain shareholder approval, according to a filing with the U.S. Securities and Exchange Commission.

Datalink derives gross margins of more than 18 percent from its product sales and more than 30 percent from its services sales, Bryan said. Roughly 70 percent of Datalink's $771 million in revenue stems from product sales, with the remaining 30 percent stemming from services such as OneCall around-the-clock technical support, consulting and managed services.

Insight also has its own managed and consulting services practice, but Bryan said the OneCall offering – which is the largest component of Datalink's services revenue and includes IT audits and assessments – will be different than anything currently in the Insight ecosystem. Datalink will also provide Insight with more field sales coverage in California and the Northeastern U.S., Lamneck said.

"Being global is certainly going to assist Datalink as a lot of their clients have a need for more global solutions," Lamneck said.

Lamneck praised Datalink for its evolution over the past three decades from a regional, storage-focused VAR to a national solution provider capable of delivering storage, server or networking technologies either as discrete point products or as part of a holistic solution.

Datalink's customers, meanwhile, should benefit from Insight's strong e-commerce and digital marketing capabilities and global reach, Lamneck said, as well as a very scalable IT platform based around SAP. The IT systems integration should be complete by the second quarter of 2017, Lamneck said.

Datalink serves more than 60 percent of the global Fortune 500, including some of the same clients as Insight. But the relationship is usually complementary, Lamneck said, since Datalink is typically focused on their data center needs while Insight -- Microsoft's largest global partner -- might be providing support around software or other adjacent products.

Datalink's stock is up 18.4 percent in trading early Monday to $11.16 per share, only a touch below Insight's offer price of $11.25 per share. Insight's stock, meanwhile, is up 2.3 percent to $28.80 per share.