CDW Buys Its Way Into the i5 Business Through Berbee Acquisition

Published: October 23, 2006

by Timothy Prickett Morgan

IT distributor CDW, which is one of the largest distributors of PCs, servers, and software in the world, has completed its acquisition of Berbee Information Networks, an IT reseller based in Madison, Wisconsin, for $184 million.

Berbee was founded in 1993 by a former IBM systems engineer named Jim Berbee. He set up the company to provide systems integration and other services for IBM midrange gear and networks, then added support for other IBM server products (including System p5 and System x today in addition to System i5). Berbee, who is chairman of the board of the company that bears his name, eventually grew the company to the point where it expects to have about $330 million in annual sales in 2006, driven by 700 employees working in Wisconsin, Illinois, Minnesota, Michigan, Indiana, and Ohio. That's what we used to call the Northwest Territories back in the early 1800s, and is what we call Big Ten country these days.

Since its founding, Berbee has expanded to include Microsoft products, and is a big Cisco Systems partner, too. Berbee has two giant data centers for hosting applications. While Berbee's growth has been remarkable since 2000, when it posted $77 million in sales, the company's revenues were $310 million in 2005 and growth has stalled. (This happened in 2003 as well.) So Berbee may be up against growth limits working in the Midwest.

Hence, the CDW acquisition. At $184 million for a privately held company with around $330 million in sales estimated for 2006, CDW seems to have got quite a deal on the Berbee acquisition. CDW says that it did the Berbee acquisition because it wanted to be able to build out the kind of IT services it can offer and to expand its customer base. CDW was founded in 1984, and prior to the Berbee closing, it had 5,250 employees. (A good omen, indeed.)

CDW had $6.3 billion in sales in 2005 and has shown consistent revenue growth over the past five tumultuous years along with respectable profits. So long as CDW, which is based in Vernon Hills, Illinois, doesn't give the i5 short shrift, this is a good home for Berbee and its i5-related business. Just like Berbee was valued at less than its annual revenues because of the cut-throat nature of the IT reseller and services business, Wall Street also has a lower market capitalization on CDW--at around $5.1 billion--than you might expect given the company's solid financials. That is because CDW's revenues have stalled a bit, too.