CDW, the big dog among direct market resellers, is once again heading to Wall Street, according a Reuters report. The Vernon Hills, Ill., company could raise as much as $750 million in the initial offering that makes the company public for the first time since its private equity takeover five years ago.
Plans for CDW’s IPO are hardly a surprise. The DMR has been telegraphing its intentions to go public for much of the last year. The exact timing of its Wall Street reintroduction is the only thing that remains unknown. JPMorgan Chase, Barclays and Goldman Sachs are reportedly underwriting the debut.
CDW and its backers have not commented on the reports, which come as the Dow Jones Industrial Average continues a streak of all-time record highs, erasing losses from the September 2008 crash that wiped out nearly half of all stock market value.
CDW, founded in 1984, was taken off Wall Street by private equity investors, including Madison Dearborn Partners LLC and Providence Equity Partners, in 2007 for $7.3 billion. At the time, the privatization was considered necessary to restructure the company for sustained performance and growth.
The channel has a love-hate relationship with DMRs, as they are secondary suppliers and competitors. CDW is the largest DMR amid a field that include Zones, Insight, PC Connection and Tiger Direct. In some circles, Dell Inc. is considered a DMR because it passes huge volumes of product sales on behalf of its technology partners.
Vendors, too, have a love-hate relationship with CDW and other DMRs, as they do not follow the same rules as resellers. A VAR or solution provider is motivated by upfront margins, field support and incentives. A DMR like CDW is paid for access to their marketing programs, tele-sales services, catalogs and huge list of customer accounts. The pay-for-play access frustrates vendors, which want to treat all partners on a performance basis.
Solution providersn complain CDW is a commoditization vehicle. Where solution providers sell on the value of their integrated solutions and support, CDW and other DMRs steal deals based on price. Many solution providers say they often lose product sales to CDW, only to pick up professional services work installing and supporting the equipment drop shipped to customer sites.
CDW brushes off channel critics, saying it rarely wins opportunities where traditional solution providers have strong expertise and customer relationships. But CDW and other DMRs are taking on more attributes of their value-add brethren in a bid to expand market penetration, capture accounts and create recurring revenue.
The reemergence of CDW on Wall Street will be vastly different than when it exited. Even before its private equity buyout, CDW was transforming itself with value-add professional services. In 2006, it bought Berbee, a large systems integrator, to extend its capabilities. Over the last five years, CDW has steadily grown its business to include local integration programs, managed services and cloud services.
CDW isn’t the only DMR expanding capacity and capabilities. PC Connection and Best Buy for Business have each bought integrators and MSPs to capture additional value-add and recurring revenue opportunities. When CDW goes public, the channel will get a good look at just how it makes money and the new competitive threat DMRs present to their value-add model.
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