Solution Provider Valuations on the Way Up
Opinion: CDW's buyout by a private equity firm for a premium over its share price means higher values all around for profitable service providers.For a lot of solution providers CDW has been nothing short of a mortal enemy, ranking right up there with Dell in terms of using volume purchasing to drive down margins. By leveraging the volume it sells, CDW has historically been able to get better pricing from suppliers, and it has used that advantage to win a fair amount of business over the years. So its with some bittersweet irony that solution providers are greeting the news that CDW is going private in a deal worth $7.3 billion. The bad news, of course, is that CDW will use that funding to compete more aggressively than ever. But the good news is that investors were willing to pay a premium in part because CDW has developed a recurring revenue business model. A lot of the revenue comes from CDWs slow but steady approach to building an IT services business, first around basic technical services that has now evolved to include a full set of managed services offered through the Berbee subsidiary it acquired last year.
Part of the thinking at CDW is that they will use some of this private equity money to acquire additional companies similar to Berbee. That may be good news for some of the owners of the solution providers that CDW chooses to acquire at a price that will probably be higher than before a private equity firm paid a premium of $7.3 billion to take CDW private.