CDW broadens its technical expertise further with the acquisition of one of Canada’s top solution providers, but just what is CDW getting in the deal?
On Friday, CDW announced an agreement to acquire Canadian solution provider Scalar Decisions, which is expected to close in the first quarter given regulatory approval. By Canadian standards, it’s a huge deal. CDW Canada is the largest solution provider in Canada, by any definition. Scalar is a consensus top ten. CDN, which compiles an annual ranking of solution providers, has put it in the number eight slot in each of the last two years.
Scalar has a national presence. In addition to its Toronto offices, it has ones in Montreal, Ottawa, Winnipeg, Edmonton, Vancouver and Victoria, with almost 350 employees across the country. They are probably best known for their storage and infrastructure business, but they have a variety of practice areas, including security and cloud, and also enjoy a reputation for having deep technical skills.
CDW is emphasizing the addition of that technical skillset to their own capabilities. While ChannelBuzz was unable to get anyone from CDW to speak on the record about the deal and its meaning, CDW did offer a commentary.
“We are excited about the acquisition of Scalar because it strengthens our value proposition in two big ways,” said a spokesperson for the company. “It enhances CDW Canada’s technical capabilities and expertise in areas such as professional and managed services, infrastructure, security and cloud. And it expands our geographic reach in Canada to serve our customers where they need us.
“The addition of Scalar’s strong expertise in solving complex technical problems enhances the value we can deliver to customers,” the spokesperson added.
Exactly what CDW paid for Scalar is not known, and is not likely to be. Scalar is privately held, and very few sale prices of privately-held companies are disclosed. Still, while Scalar’s reputation speaks for itself, there are several questions which remain unanswered about this deal.
The first oddity was that it came completely out of the blue. That in itself does not mean anything. But it is not the norm in the solution provider market, where there is usually considerable buzz that a company is on the market. Before Northern Micro was acquired by Converge Technology for example, it was fairly common knowledge that the company was for sale, for some time. ChannelBuzz had not heard anything about this one before it broke, and nor had any industry-watchers with whom we spoke.
This becomes of interest because of the second, and more important issue, how Scalar’s business was doing. The CDW press release announcing the deal referred to Scalar having had trailing 12-month net sales of approximately C$250 million. That’s pretty good. The problem, however, is that it is significantly lower than available public record sources for the previous year, which is really the only way to measure the revenues of a privately-held company.
First, when Deloitte honoured Scalar in March 2018 with a designation of one of Canada’s best managed companies, Scalar issued a press release that the company had grown to more than $425 million in annual revenue. Second, last May, in that annual ranking that CDN compiles, they reported that Scalar’s revenue for the previous year was in the $300-$325 million range. That’s a fair discrepancy. While the Scalar data obviously comes from Scalar, the origin of the CDN data is less evident. Nor are they likely to disclose to ChannelBuzz where it came from. However, we have more than a nodding idea of how the data from private companies is compiled on such industry lists. A major source, when possible, is from the company itself, but like industry analysts who track shipments, media analysts also are likely to speak to distributors, and get data from them. The bottom line, however, is that both numbers are much higher than the $250 million number provided in the press release.
So what happened? The simple explanation is that Scalar hasn’t been terribly precise about the numbers that it makes public. The other, more problematic, explanation is that the company’s revenues have dropped, significantly. That, in turn, could explain why Scalar was sold. And while that would not impact the skill level of the acquired asset at all, it would mean that the business would have to be built back up.
If CDW clarifies these data for us, we will be sure to let the ChannelBuzz audience know.