CDW on the Sales Block

 
 
By Jessica Davis  |  Posted 2007-05-29 Email Print this article Print
 
 
 
 
 
 
 

Private equity firms are reportedly negotiating to acquire the publicly held technology reselling giant. (The Channel Insider)

Catalog and Web solution provider CDW, a giant in the technology reseller space, is reportedly in talks to be acquired by a private equity firm. The move to private equity ownership would spare the company from Wall Streets laser-like spotlight and allow it to focus on increasing its margin—in contrast to the sales and revenue growth demanded by Wall Street, consultants familiar with this kind of deal said. "They could do a lot more with their business without so much public scrutiny of every dime and dollar," said Diane Krakora, president and CEO of Amazon Consulting, a VAR consulting firm.
"High tech, in particular, has been under enormous pressure to deliver quarter after quarter of growth," said Ann Zink, chief strategy officer of AZtech Strategies, a go-to-market channel consulting firm.
Click here to read about the reseller agreement between Sun Microsystems and Open Text. Multiple private equity firms are in talks to buy CDW, which has a current market capitalization of $6 billion, according to a report in the Wall Street Journal. Chicagos Madison Dearborn Partners is leading the pack, the report said. CDW did not respond to requests for comment.
"Its a landscape-changing event," said Martin Wolf, president of Martin Wolf Securities, based in San Ramon, Calif. Martin Wolf Securities works with service-based companies, including VARs, on mergers and acquisitions. Wolf called the potential CDW buyout the most meaningful transaction since he started in the business in 1984, the same year that CDW was founded. "They have a stunning valuation, and Ive maintained for some time that they are the best operator in the space, but they have not been rewarded for the past five years," Wolf said. For instance, CDWs compound annual growth rate over the past five years has averaged 5 percent while its share price appreciation has been just 2 percent for the same period, Wolf said. Even more importantly, to VARs, the potential CDW deal signals that the channel itself is undervalued, according to Wolf, and it sets a theoretical ceiling on what channel companies are worth. "It will set a benchmark for years to come, should it happen," he said. CDWs share prices have moved up recently by more than 20 percent since the beginning of April, according to the Wall Street Journal report. In 2006 the company reported net income of $266.1 million on sales of $6.79 billion. Attend Ziff Davis Medias Managed Services Virtual Tradeshow without leaving the office. Click here to register. The move to go private would also set the stage for CDW to make a series of its own acquisitions that could boost profitability. And while the company has room to expand internationally, there are also plenty of ways for it to expand in its existing geographic markets too—a more likely choice for CDW, given its recent strategic moves. Both Wolf and Krakora said they believe that if the company is bought by private equity firms and taken private it will most likely focus on the more lucrative services and solutions business, such as that pursued by CDWs recent acquisition target, Berbee Information Networks. CDW announced plans to acquire Berbee in September 2006. "Im assuming they will be looking to move up the value chain to accelerate growth," Wolf said. "By selling services they could significantly increase profitability," he added, noting that Berbees gross margin is significantly higher than CDWs. And while most solution provider companies are already private companies, Krakora said, the growth of the overall channel has piqued the interest of private equity firms. And, according to Wolf, "When the largest company is a target, it sends a signal that everything is in play… I do know a lot of people are getting phone calls from private equity firms," he said. Read the full story on The Channel Insider: CDW on the Sales Block Check out eWEEK.coms for the latest news, views and analysis on servers, switches and networking protocols for the enterprise and small businesses.
 
 
 
 
Jessica Davis covers the channel for eWeek and Channel Insider. Her technology journalism career began well before anyone heard of the World Wide Web and has included stints at Infoworld, Electronic News/EDN, and the Philadelphia Business Journal. Her work has also appeared on CNN and Forbes.com. She has covered hardware, software and networking, as well as the business side of technology. She has won several journalism awards, including a national ASBPE award for best staff-written column, and was named Marketing Computers hardest working tech journalist on their inaugural list of top tech journalists. Jessica can be reached at jessica.davis@ziffdavisenterprise.com
 
 
 
 
 
 
 

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