Insight-PCM Deal To Spawn $9B Goliath With ‘Global Scale And Deep Technical Talent’

The deal came together in a series of conversations over the past two years, driven primarily by the relationship between the company’s CEOs. The new combined company puts Insight at No. 11 on the CRN SP500, just behind SHI.

Insight Enterprises announced it is buying PCM Inc. for $581 million in cash and assumed debt, bringing two channel giants together under one roof, creating a solutions juggernaut, with expected annual sales of more than $9 billion, Insight announced.

“Together we will solidify our position as a market leading solution provider with global scale and deep technical talent helping clients across the globe run their businesses smarter,” Insight CEO Ken Lamneck told analysts on a conference call Monday announcing the deal. “Together we expect to drive net sales of more than $9 billion annually and higher gross margins than Insight alone.”

Once the deal closes, the combined company will have more than 7,500 client-facing employees, including sales, presales, software development, design, engineering, implementation and management, a technical pool that will differentiate them from competitors, Lamneck said.

[RELATED: The Insight-PCM Deal: 6 Big Things You Need To Know]

Lamneck has been building the company’s services portfolio through acquisition as well as in-house talent development -- including the addition of a 1,000-person strong software development, solutions architect team. Gartner's 2019 Magic Quadrant for Managed Workplace Services North America recognized Insight for the third consecutive year.

In an email to vendors, Insight said through the deal it will gain thousands of new clients “spanning public sector, commercial mid-market and global enterprises.”

“The integration of Insight’s and PCM’s consulting, technical and managed services offerings will provide our combined clients access to deeper technical skills than either company offers alone,” the email read. “PCM adds about $178 million of PCM-delivered services to our business, primarily in the Connected Workforce and Cloud + Data Center Transformation solution areas.”

Insight shares rose were up more than 1 percent to $58.51 on Monday afternoon, while PCM shares spiked more than 10 percent to $34.67.

There was no broad auction process for PCM, said Insight CFO Glynis Bryan in response to an analyst. Rather, she said the deal came together in a series of conversations over the past two years, driven primarily by the relationship between the company’s CEOs: Lamneck and Frank Khulusi, chairman and CEO of PCM.

Lamneck said the two companies share a similar philosophy.

“Frank and I have had a long-term relationship for quite a few years, and we think culturally we have the same vision, the same approach to teammates and how we approach our partner base and our client set,” Lamneck said on the call. “We think there will be a lot of similarities, a lot of goodness in the combination together.”

El Segundo, Calif.-based PCM -- No. 30 on the 2019 CRN Solution Provider 500 – works with mid-sized to enterprise-level clients, as well as government clients in the state, local and federal space, across the United States, Canada and the United Kingdom. Through PCM, Insight will gain some 40 locations across these geographies as well as more than 4,000 employees, including more than 2,700 client-facing teammates in sales, technical and service delivery roles.

PCM has had a rough few years in the acquisition space. In 2015, PCM agreed to buy En Pointe, a fellow Microsoft partner, in a $15 million deal that was the largest by PCM at that time. That deal soon soured into cross accusations and legal action. By July 2017 PCM was embroiled in four lawsuits across four different jurisdictions related to the En Pointe acquisition, and spent $1.4 million one quarter on litigation costs related to M&A activity.

For the year ended March 31, PCM reported $2.2 billion in sales.

Insight – No. 14 on the 2019 CRN Solution Provider 500 -- is looking to make a series of cuts once the deal closes in the second half of 2019. The company expects to find $70 million in savings at the combined enterprise by 2021, with efficiencies related to “corporate expenses, stimulating sales and service delivery operations, and the effects of combined technology systems and operations.” Half of those $70 million in cuts will be carried out in the first 12 to 18 months, Insight said.

Lamneck singled out PCM’s public cloud hosting business as one area that could be on the chopping block.

“We definitely are looking at those pieces, that one specifically, to see if that really fits well in the portfolio,” Lamneck said. “All the other pieces seems to fit very, very nicely into the business, but the hosting business is one that we’ll look at very closely. It’s a relatively small part of the business, but we want to see if there’s an opportunity there for us to take advantage of or if that’s something that may not be a strategic fit long term.”

Lamneck said both companies run on the SAP platform, which will make combining the operations much easier. He said Insight has a great deal of experience in the arena, having brought its Canadian business onto the SAP platform, as well as its Asia Pacific business, and its acquisitions of Datalink in January 2017, Cardinal Solutions Group in August 2018, and BlueMetal in 2015.

“We’re pleased that they’ve got the majority of their business on SAP,” Lamneck said. “It’s very, very close to the same sort of version we’re using so we don’t anticipate that that’s going to be an issue, but we’ll be digging into those details. Then we’ll expeditiously look at how do we bring the rest of the business on to the SAP platform, so we’re on one platform.”

The deal comes 17 months after Insight beefed up its midmarket services footprint with the acquisition of Datalink, one of the channel's largest pure-play data center solution providers. That $258 million deal strengthened Insight’s data center services offerings around hybrid cloud, converged and hyper-converged infrastructure.

Martin Wolf, president of martinwolf M&A Advisors of Walnut Creek, Calif., one of the top channel investment advisory deal-makers, said the acquisition “reaffirms” Insight’s position as a market leader.

What’s more, Wolf said Lamneck has already demonstrated his ability to integrate a large acquisition like this with the Datalink deal. “That is unbelievably important,” Wolf said. “Most transactions fail. Ken Lamneck has demonstrated with the successful integration of Datalink that he is a consolidator and he can successfully integrate large disparate companies. He has done this successfully before.”

Wolf predicted more consolidation ahead in the SP500 market. “There already is a lot of consolidation and there is going to be more,” he said.

Insight vendors and customers will “love” the deal, said Wolf.

“There are fewer throats to choke in the channel with a deal like this,” he said. “At the end of the day, resellers, VARs and solution providers serve customers and vendors. Insight just became a lot more meaningful to a big piece of their constituency.”

Wolf said Insight will take out overlapping costs from the deal even as it captures more customers. “The two businesses were very similar,” he said. “They will take out real costs and keep the customers.”

Lamneck said just like Insight, PCM also has a strong e-commerce engine, and the two companies will work to bring that capability together.

“We think that’s where a lot of the cost synergies will come from,” he said. “We’ll be able to service our clients and our partners more seamlessly with this combination.”