Q&A: CDW, Berbee CEOs Shed Light On Acquisition

CDW Chairman and CEO John Edwardson and Berbee Information Networks CEO Paul Shain answered questions during a teleconference about margin pressure and solutions growth strategies in the wake of CDW's $175 million deal to acquire Berbee, one of the largest privately held solution providers with Cisco, IBM and Microsoft practices. Below are excerpts from question and answers sessions with CRN and other media.

Q: Given that Berbee is very much a services-solutions organization, do you envision that you are going to be able to keep the same margins that Berbee had before from this business going forward or do you envision using your volume to drive down the cost of solutions to your customer, making price a differentiator as you go out (to the market)?

Edwardson: You know this is an interesting question because in general our margins are better than any VARs that we looked at. So I have never quite understood your question because if you look at our margins and compare them to the industry in general our gross profit margin is as good as anybody's and our operating income as a percent of revenue is generally better than anybody's. I actually don't think the question is a relevant question.

Q: Can you give a little more color on the vision of where you see this ending up. For example, if Berbee has 11 offices now in the Midwest, do you envision having hundreds of local offices across the country to compete against local VARs?

Edwardson: You know we have not thought about hundreds, certainly. Paul, I think you can speak about this one best because it was your vision that got me very interested (in buying Berbee). So why don't you talk about your growth ideas.

Shain: Our vision of growth is I don't think it is hundreds, but I do think there are certainly some geographic areas you can cover from a regional area. I think it is going to be more of a regional approach moving forward. We have looked at and certainly made a number of acquisitions in the history of Berbee. Our view is always to find great companies that may have one or maybe two product categories or product areas that they focus in on and bring our full portfolio to them. Hundreds is not necessary, but good solid strong regional offices that can support a state or a region are really the model moving forward.

Edwardson: One of the things that we are very excited about is, as you know, CDW has hundreds of thousands of customers around the U.S. and, as we look at major cities in the U.S. in most major cities, we have thousands of customers in each of those cities. So as we are moving and expanding, we will add a deep list and a good rolodex, if anyone uses rolodexes anymore, of names. And we think it will be a wonderful way to help open and establish these new offices.

Q: You mentioned that you have been looking at a number of possible acquisitions over the past year or so. Are you in fact still looking for other VAR acquisitions?

Edwardson: What we are going to do in the future here is in terms of what Berbee does, the growth will be within Berbee. So Paul will be very active looking and he will be getting the resources to work with him of CDW's own team. So the answer is we will grow both organically and by acquisition in the Berbee operation. Q: Explain the purchase price of $175 million given the revenue of $390 million and expectations of further growth?

Edwardson: One of the things was of course there was a number of companies that we believe, although Paul was very conscious not to let us know, that were looking at Berbee in addition to us. We know there were a number of other companies looking and then of course what was important to us, was most important, was the people at Berbee, and if you look at any particular acquisition you don't look just at revenue and you don't look just at the money. You look at who is making the money for them and who is giving the service to their customers.

The thing that was most attractive to us was the recognition that Berbee workers had received from the people that I mentioned earlier — IBM, Cisco and Microsoft — for the very good job that they do. And you can measure that job in a number of ways. One way is that recognition. Another way is growth. They clearly have been growing very rapidly. That was of great interest to us. And the purchase price is what it is.

Shain: We went through a process here. Most importantly we were looking for a transaction that addressed our goal of what fits our customers, what fits our co-workers and what's good for our shareholders, and we think the acquisition by CDW is just a tremendous fit on all three vectors and really accomplishes all of the goals that we set forth.

Q: There was some discussion a number of years ago of a Berbee IPO. Can you tell me what changed your mind in terms of acquisition rather than IPO?

Shain: We have not really seriously considered an IPO for the last several years. I know that clearly that was an option available to us. Probably more importantly for us is strategically what is going on in the industry.

Our industry is consolidating. The complexity of the technology solutions that we provide customers is increasing. And the ability to combine with CDW, which brings a number of products and services and capabilities and customer relationships to our organization, and conversely the ability to take our products and services into their core installed base was very attractive and we think frankly provides a tremendous foundation for growth.

They are financially an extremely strong company. They have a commitment to growth. They share the vision of where this industry is heading. So when you put all those pieces together, I think we actually can achieve our objective of building a $1 billion services organization faster by partnering with CDW than we could have through an IPO.