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Anatomy of a deal: CDW and Berbee

Madison, Wis. - In Wisconsin, there is a growing belief that whenever a state company is acquired by an outside entity, the loss of local ownership inevitably harms the state's economy. But the recent acquisition of Madison's Berbee Information Networks Corp. by Illinois-based CDW Corp. has a real chance to benefit both parties and both states, according to those closest to the deal.

The win-win view not only was offered by executives in both companies and an attorney familiar with the acquisition, but backed up by a research analyst from Robert W. Baird.

CDW's acquisition of Berbee, which came about quickly in a June to October time frame, is viewed favorably for reasons of cultural compatibility and competitive synergy.

“It's a good news day for the state because what we have is a commitment to continue a success and continue growing a business that's headquartered here, and that's good for us,” said Todd Linstroth, a senior partner in the law firm Michael Best & Friedrich. “I really think it's important to counter the notion that this could be a case where it's not good news for the state of Wisconsin.”

The deal was reached not through a series of complex negotiations that required endless give and take; it came together as part of a competitive process in which Berbee solicited acquisition offers. CDW was one of a half dozen serious suitors, all of which were evaluated concurrently, and it was chosen after Berbee realized that a partnership could take each organization to a higher level.
Tale of the tape

In its 13-year history, Berbee has been able to finance growth through earnings and outside capital, but continued growth will require significant capital in people and in infrastructure.

CDW, with $6.3 billion in annual revenue, 4,300 employees, and a market capitalization of $5 billion, ranks 343rd on the Fortune 500 list. The company offers more than 100,000 computer products, plus IT solutions for business, government, and education, including those of technology brands like Apple, Cisco, IBM, Lenovo, and Microsoft. It has ample capital to help Berbee expand, and the game plan is to grow the Madison company to the $1 billion mark in annual revenue.

In turn, the privately held Berbee, with annual revenue approaching $400 million and more than 700 employees, has plenty to offer CDW. With two data centers, it features the co-location concept of IT management with offsite data hosting, and it serves as a technology reseller for Cisco, IBM, and Microsoft. The company has clients in the corporate, healthcare, and education spaces, plus state and local governments.

Many technology companies will have one or more software solutions, but few have the suite of high-end services that Berbee offers. One factor that convinced CDW to make an offer was that this combination could help it capture a greater share of existing customer spending, and therefore provide a platform to meet its own goal of growing to a $10 billion company by the end of 2008.

“It was our customers that were leading us in that direction,” said John Edwardson, CDW's chairman and CEO. “They wanted CDW to take care of all their technology needs.”

Berbee CEO Paul Shain believes CDW advances its acquisition strategy in two important ways. First, he said its size and scale and capability bring together a powerful prospect for potential acquisition targets. Second, the financial strength of CDW “makes it a little bit easier to do acquisitions than we could have done as a stand-alone entity,” he noted.

Acquisitions aren't the only way Berbee intends to reach $1 billion in annual revenue. Its own organic growth, combined with a broad range of cross-selling opportunities with CDW's massive customer base, is another piece to the puzzle.

Have you met?

The cross-selling opportunities, in fact, were the biggest selling point in pitching the partnership to Berbee clients. Prior to the acquisition, approximately two-thirds of Berbee's customers were not CDW customers.

“We have 350,000 or 360,000 customers,” Edwardson noted. “We can introduce those customers to the Berbee team.”

However, the most important issue from Edwardson's vantage point was the strong cultural fit between the two companies, one that both management teams sensed early on. When Jim Berbee made his first visit to CDW's Vernon Hills facility, he noticed that Edwardson did not have an assigned parking space, and he saw several highly visible signs of employee recognition, a practice that Berbee also follows.

Business culture was potentially the largest hurdle. CDW had great confidence in the financial considerations, in part because both companies use PriceWaterhouseCoopers as an external auditor, so once CDW was sure the two companies could work well together on integration matters, a major issue was addressed.

“We were looking for a company we could use as a platform to build our business,” said Edwardson, who traveled to Madison to personally deliver CDW's acquisition offer to Shain. “Berbee is a high-quality company with great talent.”

For Shain, the geographic proximity - Berbee and CDW are two hours apart by car - was vital for collaboration and communication, but cultural considerations were likewise important. "I think Berbee and CDW are both people-intensive businesses," he said. "The philosophical view on how you conduct business, the philosophy of how you treat staff members and co-workers, is very important to us, and their vision of the future was very important to us.

"We were keenly interested in not only the financial aspects of the transaction, but also the human aspects of the transaction."

Shain took issue with rumor-mill talk that Jim Berbee could have gotten more for the company than $175 million in cash. He said Berbee's evaluation process looked at three considerations: Was it good for customers? Was it good for co-workers? Was it good for shareholders? Based on the answers to those questions, he said CDW was the best choice.

“I think that we were very happy with the transaction as it stood, again meeting the objectives of clients, co-workers, and shareholders, and that was an important aspect,” Shain said. “I think the terms and conditions and price were extremely attractive, and I'm not sure that I would agree with that statement.”

The marriage

Considering the possibilities going forward, the partnership sounds like a great marriage on paper, but is there anything that can scuttle it?

Linstroth, Edwardson, and Shain certainly are optimistic, and they have reason to be, according to Daniel Renouard, a research analyst for Robert W. Baird.

Renouard, citing business and cultural compatibility, said the odds of this relationship not working are low relative to other deals. “It certainly can work to the extent that these are complementary businesses,” he said, “and they don't compete with each other.”

Shain said the two companies need to remain focused on defining and executing a business model that thinks through the requirements of clients. "I think we are very similar businesses in terms of what we do and how we approach the IT space," he stated. "We have some complementary skills, and so unlike acquisitions that involve two very diverse organizations with different businesses, different business models, that's not the case here."

Related stories

CDW names VP to handle Berbee merger

Tom Still: Who's right about Wisconsin - CDW or RedPrairie?

Berbee believes acquisition by CDW will make it a national IT player

Microsoft rewards Berbee for project management expertise

Cisco names Berbee a top partner of 2005

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