PC Mall To Acquire SARCOM In $55 Million Deal

PC Mall, the huge Torrance, Calif.-based direct marketer of products from vendors such as Apple, Hewlett-Packard, IBM, Lenovo, and Microsoft, plans to pay $47.5 million in cash and up to $7.5 million in PC Mall stock to acquire SARCOM, Cleveland, Ohio.

The acquisition will be affected by merging an acquisition subsidiary of PC Mall into SARCOM, which will then become a wholly-owned subsidiary of PC Mall, said Frank Khulusi, chairman, president, and CEO of the direct marketer.

SARCOM and Wareforce, an Irvine, Calif.-based PC Mall subsidiary which also provides complete IT solutions to customers, will be managed as a single unit under Rob Rich, the current president of Wareforce, Khulusi said.

The acquisition, expected to close during the third quarter of 2007, is only the latest in a string of similar moves by direct marketers to expand their value-added channel presence.

Most recently, Dell earlier this month acquired ASAP Software, one of the top Microsoft large account resellers (LARs) in the country, in a $340 million cash deal.

CDW acquired Madison, Wisc.-based Berbee Networks last October in a $175 million cash deal. Berbee had revenue of $390 million and profit of $22 million in the 12-month period ending the previous July 31.

CDW itself was acquired by private equity firm Madison Dearborn Partners for $7.3 billion in cash in May.

Last September, PC Mall paid $3.23 million to acquire the products business of Government Micro Resources Inc. (GMRI), giving it a Sun Microsystems product line. SARCOM is its fourth acquisition of a solution provider in 10 years.

In 2002, direct marketer Insight Enterprises acquired Comark in a deal worth about $150 million.

In addition, several vendors, including EMC, Microsoft, Xerox, Canon, and Toshiba acquired solution providers or dealers in 2006.

The direct marketing model continues to offer a strong customer proposition, and continues to garner the support of many top vendors who view the model almost as an extension of their own direct sales efforts, Khulusi said.

Traditional VARs, on the other hand, have had to ensure that they have access to resources and have the necessary scale and volume to be able to compete with direct marketers and manufacturers' direct sales efforts while providing competitive pricing, efficient inventory delivery service levels, and broad access to product and service lines, he said.

"We have found via our acquisition experience so far that when you take all the direct marketing advantages I talked about earlier, and you plug in a traditional IT reseller, that you are in effect empowering that business with the direct marketing advantages and making that business' value proposition even more powerful," he said.

The acquisition of SARCOM will help PC Mall get a bigger part of customers' IT spending, said Kris Rogers, PC Mall's executive vice president of sales.

"PC Mall believes that this acquisition will enhance PC Mall's capabilities as a reseller of advanced technology product solutions and services, and is consistent with PC Mall's commitment to grow its business through an expansion of [our] customers' IT spending," Rogers said.

With the acquisition PC Mall gets 14 SARCOM branch offices spread throughout Ohio, Michigan, Kentucky, Indiana, Pennsylvania, New York, Florida, Texas, and California.

Rogers said SARCOM's business has a big focus in the advertising and healthcare markets, plus some state and local government business, with little or no overlap with PC Mall's existing business. The company also has a business consulting subsidiary that will also join PC Mall, she said.

SARCOM had product revenue of $185 million and services revenue of $63 million in 2006. It is an HP elite partner, a Cisco gold partner, and a Microsoft LAR, and has relationships with other vendors such as Lenovo, IBM, and Toshiba. It also has a national infrastructure to support both managed and professional services, she said.

Because the acquisition has not yet closed, PC Mall cannot yet discuss integration plans, Khulusi said.

"Our long-term goal is to have, per market segment, one main business focus in that area," he said. "But we do not believe in rocking the boat. So when we first bring in these businesses, we tend to keep the brand recognition out there, and then over time our plans are to merge them. Our long-term goal is for Wareforce and SARCOM to be integrated from a brand perspective. From day one, they will be managed from an integrated perspective, and longer term they will be integrated from a brand perspective."