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Sources: Rising Star ConvergeOne In Discussions To Acquire $300M Avaya Player SPS

Michael Novinson
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Fast-growing solution provider ConvergeOne has entered into acquisition talks with 800-person networking MSP Strategic Products and Services (SPS), according to sources familiar with the situation.

The purchase of Parsippany, N.J.-based SPS, No. 74 on the 2017 CRN Solution Provider 500, would bring together two Avaya and Cisco stalwarts and roughly double the headcount of Eagan, Minn.-based ConvergeOne. Both companies are owned by private equity, with Clearlake Capital purchasing ConvergeOne in May 2014 and Court Square Capital Partners scooping up SPS in September 2011.

Clearlake and SPS declined comment for this story, while ConvergeOne and Court Square didn't immediately respond to requests for comment. CRN reported last week that Clearlake-owned Pomeroy, No. 42 on the 2017 CRN Solution Provider 500, is holding merger discussions with systems integration giant CompuCom, No. 23 on the 2014 CRN Solution Provider 500.

[RELATED: ConvergeOne Fortifies Cisco, AWS Muscle With Purchase Of 155-Person Solution Provider]

ConvergeOne has been on a rapid growth trajectory, making 13 acquisitions since 2005 and boosting its headcount over the past two years by nearly 25 percent – or 150 workers – to a staff size of 800, according to LinkedIn. The company just last month bought Cisco Gold Certified partner Annese & Associates, No. 226 on the 2017 CRN Solution Provider 500, to boost its public cloud capabilities.

ConvergeOne also had its credit rating upgraded by Moody's Investors Services in May from B3 to B2 thanks to a predictable revenue stream, improving profitability, and modest capital expenditure requirements. Moody's first assigned ConvergeOne a B3 credit rating in May 2014.

"The B2 CFR [corporate family rating] reflects ConvergeOne's solid market position as a provider of integration communications solutions and managed services to a diverse base of large enterprise customers," Moody's wrote in May 2017.

Cisco and Avaya together comprise approximately 60 percent of ConvergeOne's total product sales, Moody's said, and the company's Solutions and Enterprise divisions are dedicated to those two vendors, respectively. Similarly, SPS is a Platinum Avaya partner, a Premier Cisco partner, and a Microsoft Gold Communications partner, according to the company's website.

SPS has also enjoyed some growth in recent years, with 2015 sales reaching $300 million, up 5.6 percent from $284.1 million a year earlier, according to NJBIZ. The company made three acquisitions in 2015, purchasing networking and data center player ExtraTeam in March, state and local government and education-focused Adcap in October, and network security provider IPV Gateways in December.

But the company has gone through an executive transition in recent months, with the company in April promoting Avaya veteran and former COO Ed Nalbandian to CEO, and bringing in a new president and a new CIO from outside the company.

SPS' last permanent CEO – Tom Praschak –was in the role for 11 months, leaving the company in November 2016 and becoming interim CEO at Harrisburg, Pa.-based Essintial Enterprise Solutions in December 2015. Following Praschak's departure, former SPS CEO Tom Poole filled in an on interim basis until Nalbandian's hire.

SPS has also been impacted by Avaya's financial situation. Santa Clara, Calif.-based Avaya filed for Chapter 11 bankruptcy protection in January, and announced plans in March to sell its networking business to Extreme Networks for $100 million.

Avaya disclosed in April that it had received eight written bids for its legacy contact center business, but ultimately declined to pursue them. One month later, Reuters reported that Avaya's owners -- private equity firms Silver Lake Partners and TPG Capital – were considering the sale of the company valued at between $6 billion to $10 billion, including debt.

Like SPS, ConvergeOne has made some acquisitions in recent years. The company purchased managed services and collaboration provider Spanlink in October 2014 and cloud computing and data analytics firm Sigmanet, No. 131 on the 2015 CRN Solution Provider 500, in December 2015.

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