Datalink Acquires Bear Data For Cisco Expertise, West Coast Expansion

Midrange and enterprise solution provider Datalink is set to buy Bear Data Solutions in an $18.5 million deal expected to help it expand its West Coast operations and Cisco expertise.

Eden Prairie, Minn.-based Datalink, one of the top partners of both NetApp and Cisco, expect to quadruple its West Coast business to over $200 million and add over 1,000 new midmarket and enterprise customers as a result of its acquisition of San Francisco-based Bear Data.

The acquisition is part of a move to get critical mass in a market where it had a limited reach, according to Datalink COO Shawn O'Grady, who with Datalink President and CEO Paul Lidsky met with CRN after the acquisition was unveiled.

[Related: Datalink: FlexPod, Converged Infrastructure, Services Create Great 2013 Financials]

"We also want to build the West Coast to the same size as our central and eastern regions," O'Grady told CRN . "As we talked to investors, we identified California as an investment target."

Datalink already had a small West Coast presence that has been significantly expanded through the acquisition of Bear Data, a strategy the company plans to use in Texas, Ohio and Florida, O'Grady said.

"We always buy companies in areas where we already have brand awareness, but not offices," he said.

Bear Data had 2013 revenue of $130 million, with its primary focus on Cisco's wireless, routing and core switches, Lidsky told CRN.

That Cisco expertise was a factor in acquiring Bear Data as opposed to several other West Coast solution providers Datalink considered, Lidsky said.

"Bear Data is a strong Cisco partner in the router and switch business, while we are strong with Cisco in the data center," he said. "We want to marry those two."

Datalink's original Cisco expertise also came via an acquisition. The company five years ago this month acquired Cross Telecom for $2 million, an acquisition which eventually led to Datalink becoming one of Cisco's largest partners. That, combined with a long-term NetApp partnership, eventually made Datalink one of the top providers of joint NetApp-Cisco FlexPod reference architecture solutions.

Bear Data also brings to Datalink a federal government and education business, an area where Datalink had little play, Lidsky said.

One thing Bear Data did not bring is customer overlap.

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"There is no account overlap," Lidsky said. "In these situations, it's more likely to acquire a competitor, and so we've run into them in the past, but don't have the same customers. The best thing about buying your competitor is, you already have a lot of knowledge about them. We had a lot of respect for Bear."

Datalink approached Bear Data prior to the purchase after a mutual banker friend introduced the two, Lidskey said.

"We've known each other," he said. "We both go to a lot of the same meetings and events. That's usually the way this works. It's bankers who do a lot of initial meetings for acquisitions."

Even so, Lidsky said, Datalink's acquisitions, including that of Bear Data, are not the result of some auction.

"Bankers watch for opportunities, tell us about them and say, 'Let's sit down to dinner,'" he said.

Datalink has plans to make more acquisitions, and has told investors it plans to purchase a company every 12 to 18 months, Lidsky said.

"This summer, we raised $40 million to make acquisitions," he said. "Two years before that, we raised $40 million to acquire Midwave. So we have plenty of dry powder."

Datalink is currently looking at other purchase opportunities, but none are imminent, Lidsky said.

"The focus now is making the Bear acquisition work," he said. "We want to pause and focus on doing a good job with the integration. But our investors expect we will continue an aggressive acquisition strategy."

One thing often overlooked in an acquisition is culture fit, but it is key to Datalink's strategy, Lidsky said.

"During the process, we meet with management teams, look at the customer base and their beliefs in terms of the importance of solutions vs. selling products," he said. "We've turned down deals because there wasn't a culture fit."

As a rapidly-growing solution provider like Datalink, an acquisition often provides an opportunity to expand the leadership team, Lidsky said.

"And as we grow, we need strong leadership," he said. "We don't acquire a company unless we feel the leadership grows with it."

When asked for an example of how that worked, Lidsky pointed to O'Grady.

"He's from our Incentra acquisition," he said. "It was my first acquisition as CEO."

Don James, Bear Data president and CEO, will join O'Grady's executive team where he will continue to manage the federal business and certain aspects of the services business, O'Grady said. Over the next six to 12 months, James will also be heavily involved in marketing as well as in customer and vendor relationships, he said.

PUBLISHED OCT. 21, 2014