Sirius Confirms Forsythe Purchase Plans; Will Create A $3.26B Solution Provider Powerhouse

Sirius Computer Solutions has announced it is acquiring Forsythe Technology, creating a 3,000-employee company with deep expertise in security and managed services.

’Combining with Forsythe helps us expand the depth of our solutions and services offerings for our clients, specifically in security, risk management, and data center transformation," Joe Mertens, president and CEO of Sirius, said in a statement. "We look forward to combining the best of both companies in support of our commitment to the high quality delivery of customized solutions for our clients.’

The San Antonio, based-company, No. 26 on the 2017 CRN Solution Provider 500, expects its purchase of Skokie, Ill.-based Forsythe, No. 37 on the CRN Solution Provider 500, to close in the fourth quarter. CRN reported in August that Sirius was in negotiations to buy Forsythe, and then Thursday that the two companies had struck a definitive acquisition agreement.

[Related: 10 Things You Need to Know About The Colossal Sirius-Forsythe Deal]

The combined Sirius-Forsythe organization will have a $509.3 million security business, a 200-employee managed services practice, and count IBM, Cisco, Dell EMC, Palo Alto Networks and NetApp as its largest vendor partners, according to materials compiled by company management.

Sirius is owned by private equity firms, with Kelso & Co. buying a majority share in the company for $830 million in September 2015. Forsythe, meanwhile, is 100-percent employee-owned.

’Combining with Sirius allows us to expand our solutions and product offerings to best serve our long-standing customer base,’ Bill Brennan, Forsythe's president and CEO, said in a statement. ’We are extremely impressed with the reputation and credibility Sirius has built in the IT industry, and look forward to the expanded capabilities we will be able to bring to our clients as a result of this acquisition.’

The Sirius-Forsythe deal was the result of a "heavily contested" auction with a lot of interested bidders, said Martin Wolf, president of martinwolf M&A Advisors of Walnut Creek, Calif., one of the top channel investment advisory deal makers. Wolf called the blockbuster deal a "brilliant" move by Kelso & Co. and Mertens.

"Kelso is a deep value-added group, and Joe Mertens has demonstrated that he is an excellent operator," Wolf said.

Documents obtained by CRN indicate that job reductions are expected in certain core support roles where there are redundancies. Any U.S.-based Forsythe employees whose jobs are eliminated will receive two weeks of base severance pay plus between one and two weeks of additional severance pay for each year they were with the firm.

The combined $3.26 billion Sirius-Forsythe organization will spread its business more equally across a mix of vendors, with no one supplier accounting for more than 23 percent of overall sales, according to information from CRN sources.

In the fiscal year ended June 30, the two companies booked: $746.5 million worth of business with IBM; $731.8 million with Cisco; $302.5 million with Dell EMC; $104.5 million with Palo Alto; and $96.8 million with NetApp.

Sirius was IBM's largest value-added reseller in the United States primarily serving large enterprises and medium-sized businesses, with more than 52 percent of the company's revenue coming from Big Blue's products and services, Moody's Investors Service reported in September 2015.

A source familiar with the situation said acquiring a firm like Forsythe with a strong Oracle presence would enable Sirius to diversify its infrastructure-focused revenue and leave the firm less exposed to IBM, which has experienced revenue declines for 21 consecutive quarters. The combined organization has done $43.3 million of Oracle business over the past year, according to information shared with CRN.

"Oracle is really the only logical partner for someone like Sirius to go for," one source said. "I suspect that they're looking to build up an Oracle footprint that rivals their IBM footprint so that they're not as dependent on IBM's success for their success."

The two companies have seen enormous growth from their security practices in recent years, with combined revenue skyrocketing 71.1 percent from $297.6 million in the year ending June 30, 2014, to $509.3 million in the year ending June 30, 2017, according to information provided by sources. Forsythe accounts for more than three-quarters of the combined security revenue in the most recent 12 months.

As far as managed services are concerned, the two organizations support 300 managed services clients with more than 200 dedicated technical staff holding 3,000 active certifications across server, storage, network and software technologies. These efforts are spearheaded out of command centers located in Chicago; Toronto; Omaha, Neb.; Raleigh N.C.; and Chennai, India.

Although Sirius and Forsythe have roughly 6,000 combined active clients, less than 18 percent – or 1,080 – of those end users are shared by both organizations, according to information shared with CRN by sources. This creates meaningful cross-sell opportunities for the combined organization.

Sirius has made six acquisitions since 2014 to grow its business and expand its portfolio of offerings for end users. These include: Brightlight Consulting; Varrow; Avnet’s digital solution services; Force 3; thinkASG; and Continuum Security Solutions.

M&A advisor Wolf said he anticipates continued consolidated in what he called a "slow-growth" legacy solution provider market.

"In a slow-growth environment, scale matters," Wolf said. "There is a shaking out in the market and some people are going to be left behind. The premiums in the legacy solution provider business are going to evaporate."

Steve Burke contributed to this story.