10 Things To Know About The Insight Enterprises-Datalink Deal

Bulking Up In The Data Center

Insight Enterprises undertook a major data center offensive Monday through its planned $258 million acquisition of Datalink, No. 45 on the 2016 CRN Solution Provider 500.

The Tempe, Ariz.-based solution provider, No. 15 on the 2016 CRN SP 500, will lean on Eden Prairie, Minn.-based Datalink to strengthen its muscle around hybrid cloud, converged and hyper-converged infrastructure. The deal is expected to close in the first quarter of 2017, according to an Insight executive.

Here are 10 things the channel should know about Datalink's business, synergies with Insight and financial details of the deal.

10. The Acquisition Will Increase Insight's Adjusted Earnings Per Share

Insight said in a presentation to Wall Street analysts that the Datalink acquisition is expected to increase the company's adjusted earnings per share in the first year after closing.

The projected increase excludes one-time transaction and integration costs of approximately $8 million.

The $258 million transaction is expected to be funded through a combination of cash on hand and existing credit facilities, Insight said.

9. Datalink Must Pay Insight A $7.5 Million Fee If The Deal Doesn't Close By April 25

Datalink is obliged to pay Insight a $7.5 million termination fee if the deal isn't closed by April 25, if Datalink fails to obtain shareholder approval for the merger or if Datalink breaches the terms of the acquisition agreement, according to a filing with the U.S. Securities and Exchange Commission.

Datalink also must pay the termination fee if it agrees to a superior acquisition proposal from another firm, or if its board of directors no longer recommends approval of the acquisition, the SEC filing stated.

8. Datalink's CEO And Chief Accounting Officer Are Eligible For Retention Bonuses

The compensation committee of Datalink's board of directors approved retention bonus arrangements Sunday with President CEO Paul Lidsky and Chief Accounting Officer, Vice President and Corporate Controller Denise Westenfield.

Lidsky's retention agreement stipulates that he'll receive a cash retention bonus of $200,000 if he serves as a consultant for at least 60 days after the merger.

And Westenfield's agreement indicates she'll receive a cash retention bonus of $90,000 if she continues her employment through May 31, 2017, and a cash severance payment of $90,000 if she is involuntarily terminated without cause following the merger.

7. The Deal Will Achieve Annual Cost Savings Of $20 Million Within Two Years

Insight said it expects to receive $20 million in cost savings within two years of closing, primarily around corporate efficiencies, duplicative functions and IT system integration.

The public company synergies and benefits from the SAP ERP platform should generate $10 million of cost savings within the first year or closing and an additional $10 million in the following year, according to Insight CEO Ken Lamneck.

Insight and Datalink went through extensive analysts to determine what level of cost synergies was realistic, Lamneck said.

6. Datalink Will Contribute $600 Million To Insight's Top Line Next Year

Insight expects Datalink to contribute $600 million in incremental net sales in 2017, increasing the $5.4 billion company's top line by more than 10 percent, according to the presentation for Wall Street analysts.

Datalink reported sales of $771 million for the 12-month period ending June 30, and the company's management anticipates 2017 net sales of $770 million.

The difference between the Insight and Datalink projections is due primarily due to recognizing revenue generated from the sale of third-party service contracts on a new sales basis, according to the SEC filing. The adjustment won't have an adverse impact on Datalink's profitability, Insight said.

5. Datalink Serves More Than 60 Percent Of The Global Fortune 500

Datalink's 2,000 clients include more than 60 percent of the global Fortune 500, and primarily embraces a horizontal model with select vertical expertise, according to the presentation for Wall Street analysts.

Although Datalink serves some of the same enterprise clients at Insight, Lamneck told Wall Street analysts that the relationship is typically complementary, with Datalink focusing on their data center needs and Insight providing support around software, client devices or printing technologies.

4. More Than 450 Of Datalink's 570 Employees Are Client-Facing

More than 450 of Datalink's 570 employees are client-facing, with the workforce holding more than 1,000 technical certifications combined, according to the presentation for Wall Street analysts.

Datalink's employee base includes more than 130 field engineers and architects, more than 100 account executives and more than 80 services consultants.

Datalink has offices across 35 U.S. cities, including its Minneapolis-area headquarters and core offices in New York; Raleigh, N.C.; Atlanta; Chicago; Dallas; Denver; Phoenix; Los Angeles; and San Francisco.

3. Insight Is Microsoft's Largest Global Partner

Microsoft and Insight are both each other's largest partners.

The Redmond, Wash.-based vendor accounted for approximately 27 percent of Insight's $5.4 billion in net sales in 2015, according to an SEC filing. That's more than double Insight's second- and third-largest vendors, Hewlett Packard Enterprise and Cisco, which accounted for 13 percent and 11 percent of the company's sales, respectively.

Lenovo and Dell are Insight's fourth- and fifth-largest vendor partners, according to the SEC filing. From an aggregate purchases perspective, Ingram Micro and Tech Data were Insight's top two distribution partners in 2015, according to the SEC filing.

2. Datalink Has A Tight Bond With Next-Generation Data Center Vendors

Datalink and Insight share many of the same legacy vendor partnerships, but Datalink has a unique relationship with up-and-coming data center vendors such as Pure Storage, Nimble Storage and Nutanix, Lamneck said.

One leading vendor shared by both Insight and Datalink is Cisco, which Datalink expanded its presence with through its October 2014 acquisition of Bear Data Solutions. Datalink said in an SEC filing that it works closely with Cisco around servers and networking.

Datalink also works closely with the following vendors: Hitachi around storage; NetApp around software and storage; and Palo Alto Networks, Veritas and VMware around software.

1. Datalink Enjoys Gross Margins Of 30 Percent Around Its Services Business

Datalink derives roughly 30 percent of its $771 million in annual sales from services, and enjoys gross margins of 30 percent on its services practice, according to Insight CFO Glynis Bryan.

Datalink's flagship services product is OneCall, an around-the-clock technical support offering, which Bryan said is unlike anything in Insight's ecosystem. OneCall also includes IT audits and assessments.

Like Insight, Datalink also has a sizable consulting, professional and managed services offering. Plus Datalink has a very small warranties business, Bryan said.