PC Connection Buys $200M Softmart As Ranks of Microsoft Licensing Partners Dwindle

PC Connection fortified its Microsoft software volume transaction business by purchasing a 200-person solution provider stalwart with well-defined hardware, cloud and Office 365 practices.

The Merrimack, N.H.-based company – No. 20 on the 2015 CRN Solution Provider 500 – acquired Downington, Pa.-based Softmart, which has Microsoft's coveted Licensing Solution Provider (LSP) status, making it – like PC Connection – one of only a handful of North American Microsoft partners authorized to handle software volume licensing transactions.

’Through this acquisition, PC Connection is enhancing its service and solutions capabilities, including our cloud services, and strengthening our position with Microsoft as a tier-one, direct Cloud Solution Provider [CSP],’ Timothy McGrath, PC Connection president and CEO, said in a statement.

[RELATED: PC Connection Targets More Market Share After Q1 2016 Growth]

An industry source who didn’t wish to be identified told CRN that Softmart has been on the market for a very long time, and has been hindered by changes Microsoft made to its LSP program in recent years. Microsoft cut cloud sales commissions and Office 365 incentive fees for LSPs in 2014 as the Redmond, Wash.-based vendor places a greater emphasis on cloud, mobility and services sales for all partners.

Softmart was founded in 1982 and generated approximately $200 million of sales in 2015. The company will continue to operate under the Softmart name, according to the press release, with founder and Chairman Richard Sloane leaving the organization to pursue other interests.

Terms of the transaction, which was announced late Friday, were not disclosed. The acquisition is expected to boost PC Connection’s profitability after factoring out transaction costs and the amortization of acquired intangibles.

The deal continues the massive consolidation s among Microsoft's 15 or so licensing partners who have faced dramatic declines in profitability in the cloud era.

CRN reported in November 2014 that Microsoft was considering revoking CompuCom's LSP status because the solution provider wasn't meeting revenue targets or investing enough in technical certifications. That portion of the business was sold to SoftwareONE four months later.

PCM, No. 29 on the SP 500, has driven most of the consolidation, though. The El Segundo, Calif.-based company acquired fellow LSPs En Pointe, No. 42 on the 2014 SP 500, in March 2015 and Acrodex, No. 92 on the 2015 SP 500, in October.

The deal was highly unusual for PC Connection, which hasn’t done any M&A in more than five years. PC Connection’s most recent acquisition dates all the way back to March 2011 – five months before McGrath moved into the CEO role -- when the company purchased Valcom Technology, an Itasca, Ill.-based provider of infrastructure management and on-site managed services.

Despite relying entirely on organic growth, PC Connection drove record performance in both net income and revenue last year, with earnings jumping 10 percent to $46.8 million and sales climbing 4.5 percent to $3.5 billion. HP is the company’s largest vendor, accounting for 22 percent of overall sales, with notebook and mobility products rising from 19 percent of total sales in 2013 to 23 percent last year.

Softmart’s line card spans more than 1,750 vendors, covering everything from devices and data centers to staffing and implementation services to volume licensing to Microsoft cloud services and Office 365. The company counts small and medium businesses, academic institutions, government agencies, health-care providers and enterprise businesses among its many customers.

Aside from Microsoft, Softmart works closely with vendors such as Symantec, VMware and Lenovo. The company is focused on customer service and effective management of IT resources.