The Insight-PCM Deal: 6 Big Things You Need To Know

The $581 million blockbuster will create a $9 billion solutions juggernaut, as Insight gains more than 4,000 employees and 40 locations.

A Channel Blockbuster

A channel blockbuster that was two years in the making came about over a series of conversations between the CEOs of two solution provider giants, Insight Enterprises and PCM Inc.

Under CEO Ken Lamneck's leadership, Insight has been transformed from a product-focused reseller into an IT services powerhouse delivering breakthrough solutions in the hottest markets including Internet of Things.

That services focus has taken the Phoenix, Arizona-headquartered global systems integrator from $4.1 billion in sales when Lamneck took over as CEO to a more than $7 billion company with a robust services portfolio.

Meanwhile, under CEO Frank Khulusi, PCM has grown revenue every year: from $1.6 billion in 2015 to $2.2 billion in 2019. The company achieved that growth, despite some M&A deals that were later saddled with litigation.

Making The Deal

There was no “broad auction process” for PCM, said Insight CFO Glynis Bryan in response to an analyst. Rather, she said the deal came together in a series of conversations over the past two years, driven primarily by the relationship between the company’s CEOs, Lamneck, and Frank Khulusi, chairman and CEO of PCM.

Lamneck said the two companies share a similar philosophy.

“Frank and I have had a long-term relationship for quite a few years, and we think culturally we have the same vision, the same approach to teammates and how we approach our partner base and our client set,” Lamneck said on the call. “We think there will be a lot of similarities, a lot of goodness in the combination together.”

By The Numbers

Under the terms of the deal, Insight will acquire PCM for $35 per share- a 36 percent premium to its one month average closing share price as of Friday, June 21, 2019. That agreement would have Insight buy PCM for about $581 million in cash and assumed debt. The deal is expected to close by 2019, subject to regulatory conditions.

The deal combines Tempe, Arizona-based Insight, No. 14 on the CRN SP500, with El Segundo, Calif.-based PCM, No. 30 on the CRN SP500. The new combined company puts Insight at No. 11 on the CRN SP500, just behind SHI.

Once the deal closes, the combined company will have more than 7,500 client-facing employees, including sales, presales, software development, design, engineering, implementation and management, a technical pool that will differentiate them from competitors, Lamneck said.

Building On Success

Lamneck (pictured) has built out the company's services portfolio -- which is growing at a 23-percent clip -- through a combination of acquisitions and organic investment in talent development. Insight was just recognized by market researcher Gartner for the third consecutive year in Gartner's 2019 Magic Quadrant for Managed Workplace Services North America.

The biggest change is the addition of a 1,000-strong software development/solution architect team as there were no software developers at Insight when Lamneck, a 27-year tech industry veteran, took the CEO job.

The deal with PCM will bring additional talent to bear for the new enterprise, as more than 4,000 employees

‘Fewer Throats To Choke In The Channel’ With Deal

Martin Wolf, president of martinwolf M&A Advisors of Walnut Creek, Calif., one of the top channel investment advisory deal-makers, said the acquisition “reaffirms” Insight’s position as a market leader. Insight vendors and customers will “love” the deal, said Wolf.

“There are fewer throats to choke in the channel with a deal like this,” he said. “At the end of the day, resellers, VARs and solution providers serve customers and vendors. Insight just became a lot more meaningful to a big piece of their constituency.”

Bob Venero, CEO of Holbrook, N.Y.-based solution provider Future Tech, No. 101 on the CRN SP500, said he sees the consolidation as inevitable for publicly held SP500 companies trying to beat the quarterly sales shot click.

“Publicly held solution providers are under a lot of stress to hit their marks and their numbers,” he said. “A lot of times the only way these companies can grow at a double-digit rate is to make an acquisition. Over time it gets harder and harder for them to keep the quarterly sales shot clock running the way it should be.”

Synergy Is Coming

Once the deal is closed, Insight will be looking to make $70 million in cuts to PCM by 2021, with half of those planned within the first 12 to 18 months.

Insight said it expects to find savings inside “corporate expenses, stimulating sales and service delivery operations, and the effects of combined technology systems and operations.” Lamneck singled out PCM’s public cloud hosting business as one area that could be on the chopping block.

“We definitely are looking at those pieces, that one specifically, to see if that really fits well in the portfolio,” Lamneck said. “All the other pieces seems to fit very, very nicely into the business, but the hosting business is one that we’ll look at very closely. It’s a relatively small part of the business, but we want to see if there’s an opportunity there for us to take advantage of or if that’s something that may not be a strategic fit long term.”

A Big Bet On Microsoft

Insight -- which has partnered with Microsoft for more than 25 years -- boasts on its website that it is “in the top one percent of all Microsoft partners” with 14 Microsoft competencies including Gold in application development, application integration, cloud platform, cloud productivity, data analytics and data center.

During 2018, sales of Microsoft products accounted for approximately 18 percent Insight’s consolidated net sales compared with 11 percent for both Dell and Cisco.

What’s more, purchases from Microsoft accounted for approximately 26 percent of Insight’s aggregate purchases in 2018, according to Insight’s most recent 10-K filed with the U.S. Securities and Exchange Commission. No other partner accounted for more than 10 percent of Insight purchases in 2018.

The most recent Insight Microsoft bet came when Insight last August acquired Cardinal Solutions, a Cincinnati, Ohio-based Microsoft Partner of the Year, for $78 million.

That deal boosted Insight's Microsoft’s skills with a focus on Azure OpenSource, in mobile application development, cloud-enabled business intelligence and Internet of Things.