SIS Acquisition Brings Converge Closer to IBM; Apollo Buying Ingram Micro?; CDW Buys Scalar

February 8, 2019 - CTS announced the acquisition of SIS, a leading managed cloud services and solutions provider in the South-Central US (HQ in Lexington, KY) focused on delivering competitive advantage to customers through innovative technology strategy and solutions. CTS paid US$11.5M in cash, and will issue 8M shares to the sellers. For the TTM ending Nov 30/18, SIS generated revs of ~US$89M (including ~US$13.7M of managed services), gross profit of ~US$24.3M and Adj. EBITDA of ~US$2.6M. CTS is at the end of Phase 1 of its three-phase growth strategy – having built a national footprint across the US and Canada; with a national Managed Services/Recurring Revenue offering and a revenue/Adj. EBITDA run-rate of ~$700M/$28M. SIS adds full scale managed services and cross platform cloud solutions, which when combined with the capabilities of Microsoft Azure from Corus; Amazon Web Services from BlueChip Tek; cloud, cognitive and cybersecurity (C3) from Essex; and software and Red Hat from Lighthouse, add significant capabilities to the Hybrid IT solutions Converge can offer to its customers. We believe CTS is a now a Top 3 IBM partner in North America.

On a run-rate TTM adjusted EBITDA basis, CTS is trading at an EV/EBITDA of 5.4x versus its North American IT Services and Global VAR comparables trading at 10.7x/9.2x, respectively. Recently, CDW (CDW-US) acquired Toronto-based Scalar Decisions at an EV/EBITDA of ~15x TTM (our estimate).