Insight’s $410M Acquisition Of SADA: 5 Things You Need To Know

Here’s a look at why Insight Enterprises paid $410 million along with a potential additional earnout of up to $390 million to acquire Google Cloud superstar SADA.

Insight Ups Its Generative AI Capabilities By Acquiring Google Cloud Superstar SADA

Insight Enterprises Friday put itself in a prime position to play a leading role in the enterprise generative AI market with the acquisition of six-time Google Cloud Partner of the Year SADA for $410 million. The deal includes a potential additional earnout of up to $390 million for SADA’s owners.

The deal packs a big cloud punch, combining Insight, No. 16 on the 2023 CRN Solution Provider 500 with a multibillion-dollar relationship with Microsoft, with SADA, a Google Cloud Premier partner, No. 108 on the 2023 CRN Solution Provider 500 with approximately 850 professionals focused on Google Cloud.

“As clients’ interest in generative AI solutions grows, we believe the combination of Insight’s strength with Microsoft Azure and SADA’s strength with GCP [Google Cloud Platform] positions us as a top partner in the two leading GenAI platforms,” said Insight Enterprise President and CEO Joyce Mullen.
SADA delivered net revenue of $251 million in 2022 and gross profit of $200 million.

Insight, which lists itself as one of the top 1 percent of all Microsoft solution providers globally, said the deal puts it in the same class as Accenture and Deloitte as one of three biggest cloud players for Microsoft and Google.
The deal strengthens Insight’s position as an expert in data, AI cybersecurity and intelligent edge solutions across the top hyperscalers—Microsoft Azure, Google Cloud and Amazon Web Services, said Mullen.

“SADA adds immediate scale to Insight’s’ services business, net revenue, gross profit and gross margin,” said Mullen.

With over 75 percent of enterprises using a multi-cloud strategy, the deal makes Insight one of the top “preferred partners” across both Microsoft and Google Cloud, said Mullen.

“Together Insight and SADA will have more than 6,400 skilled, certified consulting and service delivery professionals with a majority focused on developing multi-cloud and digital transformation solutions,” said Mullen.

SADA has 10 Google Cloud Specializations, including security, infrastructure, cloud migration, data analytics, application development, location intelligence and machine learning.

Insight, meanwhile, has 22 Microsoft specializations with more than 65 Microsoft Partner of the Year awards.

“The acquisition advances our strategy to become the leading solutions integrator and further strengthens our position as a multi-cloud solutions provider, adding both scale and expertise, while enhancing our services profitability,” said Mullen.

The Terms Of The Deal

Insight said it paid $410 million for SADA with a potential additional earnout of up to $390 million to acquire SADA.

The additional earnout for SADA owners has a target of $210 million based on SADA’s three-year performance post close of the acquisition, according to Insight.

Insight said it expects the deal to add 20 to 30 cents per share to its adjusted diluted earnings per share in December 2023 and 55 to 75 cents per share in 2024.

The deal was funded through cash on hand along with an asset-based lending revolving credit facility, according to Chandler, Ariz.-based Insight.

Insight CFO Glynis Bryan said Insight will incur approximately $27 million in incremental interest expense over the first year under current borrowing rates.

SADA will contribute between $50 million and $60 million in EBITDA and between 55 and 75 cents to adjusted diluted earnings per share in 2024, according to Insight.

Insight expects its total gross margin to expand by over 100 basis points as a result of the deal.

Historically, SADA has generated low to negative EBITDA in the first half of the year and significantly improved EBITDA in the second half of the year, particularly in the fourth quarter, driven by client renewals, said Bryan.

Insight said it will incorporate SADA’s December financial results with its consolidated fourth-quarter and full-year 2023 financial results.

The company also said it now anticipates annual adjusted earnings per share for the year of $9.60 to $9.90 per share, with profit growth in the low to mid-single-digit range.

“We are thrilled about the value we can deliver to clients through the combined strengths of Insight and SADA,” said Bryan. “We remain focused on the fastest-growing areas of the market and we believe this acquisition brings us one step closer on our journey to becoming the leading solutions integrator,” said Bryan.

SADA Provides Insight With Robust Google Cloud Capabilities

SADA, which delivered net revenue of $251 million in 2022 and gross profit of $200 million, is one of the largest Google Cloud partners in the world with 850 employees.

Los Angeles-based SADA, which is exclusively focused on Google Cloud, has 3,000 customers. It has a global footprint with employees in the U.S., Canada, U.K., Ireland, Armenia and India with 400 engineers and technical experts.

SADA has 10 Google Cloud specializations, including security, infrastructure, cloud migration, data analytics, application development, location intelligence and machine learning.

“The ability to bring even stronger GCP skills to our existing client base is a significant opportunity,” said Mullen.

SADA provides deep capabilities across Google Cloud platform, Google Workspace, security, data and generative AI, according to Insight.

SADA also has strength in multiple industry verticals, including health care, life sciences, technology, financial services and retail.

SADA Was Up For Sale, Insight Beat Out Other Potential Bidders In An ‘Auction’

SADA had put itself up for sale, hiring an investment banker, said Bryan.

“SADA hired an investment banker; they did go through a process,” said Bryan. “I can’t comment on how many companies were included in that process.”

Insight had a relationship with the leadership of the SADA team, said Bryan. “I would say it was a combination of the auction process as well as maybe SADA knowing a little bit more about Insight that led to the successful conclusion of this project,” she said.

Bryan said she viewed it as a case of SADA as a “family business” interested in monetizing the business with a sale with a good market value that cloud platforms and GenAI bring to the table, she said.

SADA was founded 23 years ago by the Safoian family, Hovig Safoian and his wife, Annie, who emigrated to Los Angeles from Armenia in 1987.

“It was an opportune time to exit,” Bryan said. “There are no structural issues.”

SADA CEO Tony Safoian (pictured) And Top Executives Will Remain With Insight

Insight said the top executive team from SADA, including CEO Tony Safoian, will remain with the company.

In fact, Mullen said the potential additional earnout of up to $390 million for SADA’s owners was designed to keep the management team in place.

“The management team will stay around for a while. There is an earnout provision that is designed to do just that, and we are excited about that,” she said.

Insight plans to have SADA run independently, said Mullen.

“There might be some cost synergies in the future, but in the near term we plan on having SADA run independently,” she said.

The SADA payout includes a management plan, said Bryan.

“It is a SADA management plan, we are holding the SADA team accountable for that,” she said. “As any prudent CFO would do, we have discounted that a little bit with regard to what we think is going to happen in the first year, specifically 2024. There is always a little bit of noise when two companies come together. I think our cultures are an incredible match. We here are very excited about what SADA can do for us.”

SADA’s Google Cloud Contracts Have ‘Significant Seasonality’

SADA’s Google Cloud contracts typically range from three to five years with “significant seasonality” related to a concentration of client renewals in the fourth quarter, with December being the strongest month of the year, said Bryan.

Based on the current terms of the contracts, SADA is acting as an “agent” with revenue and gross profit recognized “up front on a net basis, she said.

Associated assets and liabilities for the full service amount not yet consumed is recorded on the balance sheet and is released over the contract term based on the customer’s actual consumption, said Bryan. “This results in an increase in Insight’s total assets and total liabilities of over $2 billion,” she said.

“SADA’s clients actually commit to the GCP agreements for whatever the term is, three or five years,” said Bryan, commenting on potential contract churn. “If the client were to leave, the client is still obligated, the client cannot just walk away. So the issue around churn is more limited. … So at the point of renewal or maybe sometimes based on usage there may be a motion to renew early, but churn is not something we are concerned with in the SADA client base.”

Mullen said Insight looked very closely at SADA’s client satisfaction and renewal rates. “We feel very good about it,” she said. “SADA is Google Partner of the Year partly because they deliver a great client experience.”