The appetite for IT services acquisitions surfaced again this week, with deals going down in the consulting and distribution sectors.
Cognizant Technology Solutions on Monday reported the acquisition of Fathom Solutions LLC, a Chicago-based consulting shop that emphasizes the telecommunications and financial services industries. Also on Monday, Caxton-Iseman Capital Inc. disclosed a definitive agreement to purchase reseller-turned-distributor Manchester Technologies Inc.
The acquisitions follow several months of merger and acquisition activity in IT services segments such as managed services, business continuity and human resources outsourcing.
Cognizant’s $19 million cash and stock deal to purchase Fathom Solutions includes a “contingent consideration” of up to $16 million two years from closing, according to Cognizant.
Former Accenture Inc. executives launched Fathom Solutions in 1999. Cognizant met with the company in 2001 during a search for acquisition candidates.
Cognizant “liked what we saw, but at the time Fathom was two years old and just beginning to penetrate the large clients that they have today,” said Larry Gordon, vice president of corporate marketing at Cognizant.
So when Innovation Advisors, Fathom Solutions’ investment banker, approached Cognizant regarding a potential deal, “We know the company immediately and were quite interested,” Gordon said.
Among Fathom Solutions’ top attractions is its telecommunications industry knowledge, Gordon said. “Their most compelling strength is their knowledge of telco service business processes and IT, especially with respect to telco convergence—voice, video, data,” he said.
Fathom Solutions’ client list includes Cox Communications, Focal Communications Corp. and SBC.
He added that the company also extends the range of services Cognizant provides in such areas as IT strategy, process design, program management and systems integration.
Fathom Solutions’ employees will be integrated into Cognizant’s corresponding vertical practices. Jeff Lee, Fathom Systems’ CEO and co-founder, will join Cognizant as managing director of Telecom Services for North America.
Meanwhile, Caxton-Iseman Capital will buy Manchester Technologies in a cash transaction valued at $56 million. The deal includes Manchester Technologies’ Electrograph Systems Inc. subsidiary, a distributor of display technology.
Caxton-Iseman, no stranger to IT services, also has invested in Anteon Corp., a federal systems integrator.
Manchester Technologies had been in the reseller business, but saw its business mix shift since acquiring Electrograph in 1997. By 2004, the reseller operation contributed 40 percent of the company’s sales, according to Elan Yaish, Manchester Technologies’ chief financial officer. In May of that year, Manchester Technologies sold its reseller business to ePlus.
Once the deal closes, the acquired company will operate as Electrograph Systems. Alan Marc Smith, former CEO of Westcon Group Inc., will invest alongside Caxton-Iseman in the deal. He will become Electrograph’s CEO. Electrograph President Sam Taylor will remain in that post and will also invest.
Electrograph’s Web site noted that the company distributes plasma displays, flat-panel LCD displays and projectors, among other products. The deal is expected to close in the third quarter.
Deloitte: Outsourcing dissatisfaction abounds.
Deloitte: Outsourcing Dissatisfaction Abounds
A Deloitte Consulting LLP study of 25 large organizations that have outsourced revealed that 70 percent had significant negative experiences with the practice.
Ken Landis, a senior strategy principal at Deloitte, said no single issue can be blamed for the customers’ displeasure with outsourcing. He cited the perception of inflexibility in outsourcing arrangements and administrative costs, among other factors.
“Their costs of administering outsourcing contracts in many cases have been multiples of what they expected them to be,” he noted.
Distributor: Wireless Gear Reaches SMB Pricing
D&H Distributing’s recent pact with Xirrus Inc. points to a new direction in wireless price and performance.
That’s the analysis of Michael Schwab, vice president of purchasing at D&H. Xirrus’ WLAN Array product uses multiple radios that support more users than traditional access points and minimize the drop off that stems from multiple users hitting the same access point, he noted.
“You have much greater throughput and a larger number of users who can access it,” he said.
On the price front, WLAN Array “is probably the first step in bringing enterprise-class solutions to the midmarket and SMB pricing,” he said. “Historically, there has been a clear separation: You were either buying consumer-type products that were in retail packaging with the feature set that fit the consumer, or you were talking about enterprise-class products.”
He noted that products with enterprise-class features and SMB-favorable pricing already are prevalent in the wired network space, citing Gigabit Ethernet hardware as an example.
In the wireless space, enterprise products have proven too expensive for business users. In addition, resellers have lacked the experience to implement many of the high-end wireless technologies, Schwab noted. D&H, he said, will present the emerging wireless technologies such as WLAN Array to the resellers pursuing wireless solutions.
How would resellers and their customers benefit from WLAN Array? Schwab cited the example of a warehouse that might have required 50 access points, but can accomplish the same coverage with one to two WLAN Arrays. As a consequence, the business enjoys faster implementation time and has fewer access devices to maintain, he said.
Ingram, Visioneer in Support Deal
Ingram Micro on Monday said Visioneer Inc., a scanner manufacturer, has become the latest company to join the distributor’s Ingram Micro Services Network (IMSN).
The network, which consists of Ingram Micro solution providers, is intended to expand vendors’ technical services reach. Visioneer, for example, will tap Ingram Micro’s support network when customers have issues that “fall outside of the scope of scanners,” an Ingram Micro spokeswoman said. “The IMSN can service the entire solution.”
The spokeswoman noted that many of Visioneer’s customers purchase products through e-tailers and catalog companies and, therefore, lack ready access to a reseller able to provide tech support. IMSN, however, provides access to more than 800 solution providers, according to the distributor.
In addition to Visioneer, Ingram Micro also has struck IMSN deals with IBM Global Services, Sony and Xerox. Visioneer is a Xerox licensing partner and offers Xerox-branded scanners.