Insight Enterprises Inc., a provider of software and hardware IT services, on Thursday said it would pay up to $160 million to acquire Calence LLC, a smaller rival that specializes in Cisco Systems Inc. networking systems, advanced communications and managed services.
Insight said it would pay $125 million in cash for Tempe, Ariz.-based Calence and up to an additional $35 million if certain performance milestones are met over the next four years.
Insight, also based in Tempe, said the addition of Calence will help to further diversify its business into the area of IT services. In a recent research note, analyst John Lawrence of Morgan Keegan & Co. noted that Insight now derives about 40% of its total revenue from software, a highly seasonal business, which has resulted in a somewhat choppy financial performance. During the most recent third quarter, for instance, Insight reported net income of 18 cents per share, well below the industry consensus of 27 cents.
"By incorporating a greater percentage of services into Insight's complete portfolio of solutions offerings, we will further differentiate ourselves in the marketplace and solidify our value proposition as a trusted advisor of technology solutions to our clients," Insight CEO Rich Fennessy said in a statement.
The addition of Calence will build on Insight's 2006 acquisition of Software Spectrum, formerly a division of Level 3 Communications Inc., which Insight bought for $287 million in cash. Software Spectrum, a major reseller of Microsoft Corp. products, also helped expand Insight's product and global reach.
Calence is a 15-year-old company that has been listed several times on Inc. magazine's list of the fastest growing privately held companies in the U.S. It was formed in 2005 from the merger of Calence Inc. and the life-cycle management solutions unit of Avnet Inc., an electronics component distributor.
Calence is expected to generate revenue of $324 million in fiscal 2008, which ends Jan. 31. In fiscal 2006, Insight earned $76.8 million on revenue of $3.8 billion. J.P. Morgan Securities Inc. served as Insight's financial adviser and delivered a fairness opinion to its board.
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