5 Things To Know About The Three-Way Deal Between Ahead, Data Blue And Sovereign Systems

The deal, unveiled last week, is poised to create a $1.3 billion solution provider juggernaut that will become one of Dell’s largest data center partners.

The New Deal

In a three-way deal, two of private equity firm Court Square Capital Partner’s solution provider companies will join forces and then acquire a third company—creating a $1.3 billion solution provider juggernaut with massive Dell and enterprise cloud capabilities.

The deal, unveiled Friday, merges Chicago-based Ahead, which is No. 75 on the 2019 CRN Solution Provider 500, with Atlanta-based Data Blue, No. 96 on the same list. Both of those companies are owned by Court Square Capital Partners, which is now acquiring Atlanta-based Sovereign Systems, which comes in at No. 185 on the 2019 CRN Solution Provider 500.

The deal is expected to close in 60 days. Financial terms of the deal were not disclosed.

Martin Wolf, president of martinwolf M&A Advisors, one of the top channel investment advisory firms, said the newly formed company will be a “formidable presence” in the channel landscape.

Cloud Transformation Key To Success

Data Blue founder and CEO Stephen Ayoub, who will step into the role of president and chief revenue officer for the soon-to-be created company, told CRN the new company will be a win for customers and vendors.

‘We consider ourselves that national VAR or aspiring to be that national VAR, but a larger solution provider of the new era—the cloud era,” he said. “Our customers have to do these large tech refreshes and they're afraid of this whole cloud era. I think we're in the right position to actually help our clients, and really help the large manufacturers—the Dells the Ciscos, the Nutanixes—really understand how to make a difference in these large, Fortune 1000 companies. That's what we embraced from the beginning.”

Partnerships with Microsoft Azure, Amazon Web Services and ServiceNow will be the keys to the company’s success in the cloud.

“Ahead’s ServiceNow practice is much larger that Sovereign’s [practice], but it's really focused on the Midwest, whereas Sovereign is down in the Southeast. But it's important. They have a strong practice and Ahead has a very large, strong practice too, and that's one of the key manufacturer software companies that we’re betting on. ServiceNow, Amazon, Azure are like our go-to-market around cloud, and I can't emphasize how important the focus we have on those three companies is.”

Wolf, who was not involved in the transaction, said the soon-to-be formed company will offer enhanced capabilities across the geographies and verticals it covers.

“The Ahead, Data Blue and Sovereign Systems merger will enable all the firms to gain new competencies in the differing regions they serve. The companies can now adopt service offerings across vertical focuses in enterprise service management, security, analytics, managed services and networking, and cloud services.The companies will also have a handful of strong partners, including Cisco Systems, Dell Technologies, VMware, ServiceNow, Amazon Web Services and Microsoft Azure,” Wolf wrote in an analysis of the transaction.

A Dell Super Partner

All three companies have a strong Dell practice, which Ayoub said grew out of their EMC business. Ahead won the Dell EMC Extraordinary Partner of the Year award in 2018. Data Blue is a Titanium partner with Dell EMC. In 2019, Sovereign Systems won an award for Channel Services Delivery Excellence in the Dell Technologies Partner Program.

“We will be Dell’s largest data center partner,” Ayoub said. “Now the asterisk on that is, worldwide, once a year, once a quarter, Dell does a large deal at JP Morgan Chase or Citi for like $100 million. So there are going to be instances where any one partner could do a really large deal for the quarter, but we would consider ourselves as far as in the solution provider space, in the data center, we’d be the largest.”

Wolf told CRN that could cut both ways for Dell.

“This is both good and bad for Dell,” Wolf said. “It’s good for Dell; they have a more professional, larger organization to support services and products. That’s a good thing for Dell. The bad thing for Dell is that they have a little big more leverage in the relationship. It makes everybody better.”

Court Square Was Not On Board … At First

Ayoub told CRN that it wasn’t always in the cards for the three companies to come together.

“Court Square wanted to keep us as two separate assets in the portfolio,” he said. “I approached [Daniel Adamany, founder and CEO of Ahead] and said, ‘This is ridiculous. It makes sense for us to come together. We’re going to compete in the market. We’re going to compete for the same acquisitions. You have a great platform. We have a great platform. We have no overlap in geography. Why … are we not coming together?’ We collectively sold [the idea of merging] to Court Square and said, ‘This is what we think is right for our customers. This is what’s right for our vendors.’”

According to Wolf’s analysis, Court Square chose other merger-and-acquisition targets for Ahead before coming back to this deal.

“One factor that makes this deal interesting is the waiting period that Court Square took before merging Ahead and Data Blue. It has owned Ahead since 2015 and funded one acquisition for the company this year a month after it had already acquired Data Blue,” Wolf said.

“The chief architect for Court Square is Jeff Vogel, who’s had experience creating impressive value for IT solution providers. He led the acquisition of CompuCom for $628 million in 2007 and sold the company for $1.1 billion in 2013, close to doubling the initial investment. By the time Court Square exited the investment, CompuCom had $2.3 billion of gross revenue and more than 11,500 employees.”

Acquisitive History

Wolf notes that all three companies have pursued mergers and acquisitions as part of their business strategies.

“The three companies have been consistently active in acquisitions. Data Blue acquired LPS Integration in January 2017 and Williams & Garcia in April 2017, and then was acquired by Court Square in April of this year,” he said. “Ahead was acquired by Court Square in November 2015 for $215 million and acquired Link Solutions Holding in May 2019. Sovereign Systems has been previously acquired once before by LogicsOne in January of 2011.”

Wolf also notes that the new company will become a major competitor east of the Mississippi.

“It will allow the solution providers to expand geographically with locations in Chicago, Atlanta, Nashville and other offices throughout the Midwest and East Coast.”

Like-Minded Merger

Ayoub told CRN that the executives at the three companies have known each other for years. He said it just made sense to create a stronger whole from their parts.

“I respect them, they respect us. For years we've been talking to the manufacturers and they've been saying, ‘There's a company just like you up in Chicago.’ And they're telling him, ‘There's a company just like you down in Atlanta.’

It just worked because there was no geographical overlap. I've known the Sovereign guys for 15 years. We're friends. We're competitors, but we're friends. One of my partners has a vacation house that they share with them. We’ll drink beer on Friday together. We play golf together. So it just works with the same mentality on how we go to market. It's good for us.”