Top computer industry mergers and acquisitions of 2007

Technology industry mergers are shrinking the number of major vendors with which to partner, but the survivors are even more eager to build up their channels.

Despite promises from industry execs such as Symantec CEO John Thompson that the pace of acquisitions would slow in 2007, technology industry mergers continued as intensely in 2007 as in 2006.

There were fewer blockbusters compared to last year, with Alcatel SA's acquisition of Lucent, CDW Corp.'s purchase of Berbee and EMC Corp.'s agglomeration of RSA.

But there were plenty of technology industry mergers that will change the way technology and money flows through the channel. Most notable were Dell Inc.'s purchases of managed services software vendor Silverback and storage maven EqualLogic, both of which turned the famously channel-averse Dell (which liked having channel partners plenty when they suited its needs) into a bona fide, overtly channel-dependent vendor.

Among the other high-impact technology industry mergers were the privatization of channel players, consolidation of enterprise solutions distributors, and the expansion of product and service portfolios in areas ranging from unified communications to managed services. Read on for the details:

1. Acer/Gateway -- Spanning the globe

  • Specialties: PCs, servers, monitors.
  • Reason for merger: Extend U.S. reach, solidify market share.
  • Cost: $710 million.
  • Reason the channel should care: Gateway's product line could see greater play in the channel, where Acer has been active.

    Acer Inc.'s October purchase of Gateway Inc. has already created a stir in the PC end of the technology industry. DisplaySearch, a market research firm, reported in December that Acer's third-quarter worldwide notebook market share, when taking the Gateway and Packard Bell deals into consideration, had leapfrogged Dell's slice of that segment. The combined 16.2% share for the third quarter of 2007 places Acer behind only Hewlett-Packard Co.

    Mergers and acquisitions don't tell the whole story, however. Matthew Wilkins, principal analyst at market watcher iSuppli Corp., cited channel execution as a factor in the company's recent rise. He anticipates that Acer will pursue brick-and-mortar retailing, solutions providers and a "slightly more aggressive attitude" to propel the Gateway side of the business.

    2. Arrow/KeyLink -- Enterprise expansion

  • Specialties: Electronics and computer products distribution.
  • Reason for merger: Expansion into enterprise computing solutions.
  • Cost: $485 million.
  • Reason the channel should care: Deal makes Arrow top distributor of IBM, HP enterprise products.

    Arrow Electronics Inc. closed its acquisition of Agilysys KeyLink Systems Group in April, bolstering its position in IBM and Hewlett-Packard gear. But beyond those brands, the transaction also serves the company's broader push into enterprise computing, storage and software solutions.

    "We've made very strong, transformational moves in our enterprise computing business," contended William Mitchell, Arrow's chairman, president and CEO, at a recent technology gathering.

    Mitchell, speaking at Credit Suisse's Annual Technology Conference, said acquisitions in recent years have nearly quadrupled net sales for Arrow's enterprise computing business. That business, now a $5 billion operation, once focused on server sales, but now emphasizes solutions based on hardware, software, storage and services.

    3. Avaya/Silver Lake/TPG Capital -- Private communications

  • Specialties: IP telephony.
  • Reason for merger: Equity infusion takes company private.
  • Cost: $8.2 billion.
  • Reason the channel should care: Avaya ranks among the key players in the burgeoning unified communications space.

    Avaya Inc. was taken private in October through a buyout orchestrated by Silver Lake and TPG Capital. The deal follows last year's networking combo of Alcatel SA and Lucent Technologies, which executed an $11.6 billion merger.

    Avaya has been pursuing channel relations, cultivating arrangements with integrators, consultants and VARs. This push appears set to continue. A few days after its acquisition closed, Avaya unveiled new programs targeting the channel. One such program lets certain Avaya business partners recruit and train independent sales agents.

    4. Avnet/Access Distribution -- Global outreach

  • Specialties: Electronics and computer products distribution.
  • Reason for merger: Boosts scale of enterprise computing business.
  • Cost: $410.3 million.
  • Reason the channel should care: Deal broadens Avnet's portfolio to include Sun Microsystems Inc., Avaya and F5 Networks, among others.

    Avnet's purchase of Access Distribution, closed in January, resembles Arrow's KeyLink deal in that both transactions aim to improve the companies' enterprise prospects. In light of Access, Avnet includes Sun Microsystems in addition to HP and IBM in its technology portfolio. The deal also extends Avnet's distribution reach in Europe.

    Roy Vallee, Avnet's chairman and CEO, said the company plans to build upon its Sun, HP and IBM relationships globally. The company is getting stronger in Europe and is just getting started in Asia, he noted during a December presentation at Lehman Brothers' Global Technology Conference. North American relationships with EMC and Network Appliance are also candidates for geographic expansion, he added.

    5. Cisco/WebEx -- Channel collaboration

  • Specialties: Networking, collaboration.
  • Reason for merger: Bolsters Cisco in unified communication market.
  • Cost: $3.2 billion.
  • Reason the channel should care: Cisco is developing a WebEx channel program.

    The acquisition of WebEx by Cisco Systems Inc. -- the reigning champion of technology industry mergers -- strengthens the company's hand in collaboration and provides a Software as a Service (SaaS) option for unified communications buyers.

    WebEx "gives us a new business model which allows our customers to consume our unified communications solution as software or as a service," noted Barry O'Sullivan, senior vice president of Cisco's voice technology group, in a recent conference call.

    Cisco is in the process of enlisting the channel to reach more customers. A pilot program, now underway, aims to make partners WebEx sales agents. In the context of that agency model, Cisco will need to determine whether partners will be compensated for renewals, according to Ken Presti, president of Presti Research & Consulting Inc.

    6. CSC/Covansys -- Heading east

  • Specialties: IT services.
  • Reason for merger: Drive global growth strategy.
  • Cost: $1.3 billion.
  • Reason the channel should care: The deal raises CSC's offshore profile, which could improve its competitive stance.

    Computer Sciences Corp.'s buyout of Covansys, which closed in July, greatly expands its offshore delivery capability in India. CSC's Indian delivery staff nearly doubled in size to about 15,000 employees -- 17% of the company's global workforce, according to Technology Business Research (TBR), a market research firm.

    CSC's Indian presence now rivals that of Capgemini and HP Services, TBR noted. The offshore resources lend CSC a competitive edge.

    "TBR believes the acquisition increases CSC's competitiveness in the commercial space, because Covansys' business model reaps cost arbitrage from its large Indian workforce, and because CSC can leverage its global sales force to further decrease Covansys' operating expenses," said Joseph Walent, an analyst at TBR.

    7. Dell/SilverBack -- Services foray

  • Specialties: Remote monitoring/management.
  • Reason for merger: Expansion into managed services.
  • Cost: Not disclosed.
  • Reason the channel should care: Dell's arrival in managed services comes as many resellers hope to move in that direction.

    Dell's push into managed services via its acquisition of SilverBack Technologies got the channel's attention. The historically direct seller could prove a rival to VARs moving into managed services or reselling them. On the other hand, Dell could use SilverBack -- and its pending purchase of Everdream -- to work more closely with the channel. Both SilverBack and Everdream had been building channel programs.

    Channel threat or channel ally? The answer may lie somewhere in the middle. Jeff Kaplan, managing director of market consultant ThinkStrategies Inc., said he believes Dell aims to offer services directly and through partners. He said the channel is most likely to play a role in midmarket and some small-business sales.

    8. Dell/EqualLogic* -- SAN channel marketing

  • Specialties: Storage area networks (SANs).
  • Reason for merger: Tap iSCSI SAN market.
  • Cost: $1.4 billion.
  • Reason the channel should care: The deal puts Dell in the middle of the SMB storage space, a sweet spot for resellers.

    Vendors of iSCSI storage products have opened the SAN market to smaller businesses. The EqualLogic deal lets Dell get in on that action. EqualLogic's expansion into high-performance iSCSI means that Dell will have an avenue into larger enterprises as well.

    EqualLogic maintained close ties to the channel, and EqualLogic and Dell executives have reassured resellers that the commitment will remain intact. SearchITChannel.com recently reported that officials at the companies will work together to preserve the key features of EqualLogic's partner initiative, while ironing out differences between the EqualLogic program and Dell's newly established partner program.

    *Deal expected to close in early 2008.

    9. Google/Postini -- Just add security

  • Specialties: Electronic communications security.
  • Reason for merger: Accelerate SaaS.
  • Cost: $625 million.
  • Reason the channel should care: Postini had cultivated a large partner base to sell its security and compliance services.

    Google's Postini purchase seeks to fortify the company's line of hosted applications. Richi Jennings, lead analyst for Ferris Research's email security practice, said Google "needed Postini's archiving, encryption and regulatory compliance technology to add to its Google Apps offering."

    Since the deal, Google has indeed announced the integration of Postini's email security and compliance services with Google Apps Premier Edition. In addition, the company has added new capabilities for both Postini and Google Apps customers.

    "We are also interested in making additional products and services available to Postini channel partners as they become available," said Sundar Raghavan, product marketing manager at Google Enterprise.

    10. Madison Dearborn/CDW -- Private equity meets the channel

  • Specialties: Technology solutions provider.
  • Reason for merger: Take company private.
  • Cost: $7.3 billion.
  • Reason the channel should care: Huge private equity deal involving a top channel player.

    CDW Corp. in October ended its 14-year run as a public company, closing its sale to private equity firm Madison Dearborn Partners. Chicago-based Madison Dearborn specializes in management buyout and private equity deals, targeting industry sectors such as communications, healthcare and financial services.

    Janet Schijns, president and CEO of channel consultancy JS Group, said privatization offers CDW the ability to change its go-to-market strategy from a retail model to more of a customer solution-based model. Freeing a company from the demands of stockholders "gives people more capability to do the things they need to do to change their route to market," she said.

    11. Symantec/Altiris -- Endpoint focus

  • Specialties: IT security.
  • Reason for merger: Improve position in endpoint security and management.
  • Cost: $830 million.
  • Reason the channel should care: Endpoint management is hot and Symantec aims to offer a comprehensive solution.

    Altiris is central to Symantec's vision of delivering an endpoint software suite. John Thompson, Symantec's chairman and CEO, said the deal leverages Altiris' endpoint management and remediation and complements Symantec's endpoint security, compliance and backup technology. In a conference call earlier this year, Thompson also cited the companies' "synergistic distribution strategies."

    "The endpoint is a critical piece for Symantec because of the company's reliance on its AV product as a cash and market penetration engine," according to Lawrence Dietz, research director at The Sageza Group Inc. "They need to take steps to bolster their position. Symantec likely believes that the endpoint security buyer is key to their success and that adding Altiris' products to the Symantec sales bag makes great sense."

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