M&a IT Service Sectors

REDWOOD CAPITAL: SECTOR OVERVIEW
July 2012
IT Services: The Evolving Cloud Service Providers
M&A in the Cloud and IT Services Sectors

The Evolving Cloud Service Providers
INSIDE THIS ISSUE
1.
2.
3.
4.
5.
Introduction
Subsector Consolidation
Valuation Metrics
M&A Activity by Sector
Acquirer landscape
1
2
4
8
29
Managed Hosting
Data Center
Telecom Service Providers
Systems Integrators
New Voice Services
Large IT Equipment Players
IT Distributors
Contact:
Russell Crafton, Partner
[email protected]
212.508.7110
INTRODUCTION
Page
This report focuses on the emerging area of managed and hosted

services for small and mid-sized businesses. In particular, the report
looks at the consolidation activity currently taking place and the
acquisition strategies being pursued by larger players in the telecom,
IT services, hosting and data center businesses as these players look
to evolve and migrate their businesses to become the leading cloud
service providers of the future.
OVERVIEW
The IT services sector is an extremely large and diverse industry.
There are literally hundreds of players with half a billion dollars or
more in revenue providing some mix of connectivity, systems integration, hosting, managed services or product sales to small and midsize businesses. As the IT services space evolves and SMB customers continue migrating to managed services and cloud offerings, this
shift presents a significant opportunity for established players who
can develop the right models and leverage their existing relationships
to capture a greater share of their customers IT wallet while establishing high margin, contractually recurring revenue streams.
Not surprisingly, many large players are using M&A to aggressively
expand their businesses. Telecom players are acquiring data center
players; data center players are acquiring hosting providers; and
hosting providers are acquiring each other to broaden their solutions.
And so as not to be left behind, integrators are acquiring managed
service providers to try and move to recurring revenue models. Even
large IT players like Best Buy and Dell have made acquisitions in the
managed services space. And of course, private equity players are
always there, buying or selling wherever the opportunity seems right.
So how can a smaller, emerging players make sense of this landscape
and understand the trends impacting their decision around when and
to whom to sell. This report looks at M&A activity across a broad
range of subsectors comprising cloud and IT services for small and
mid-size businesses. In doing so, we identify some of the key trends

shaping consolidation activity.
Section 2 graphically takes a quick look at some of the consolidation
activity for a few large players to highlight some of the key acquisition trends taking place. Section 3 focuses on the key valuation metrics and how they vary across sectors and business models. Section 4
looks at acquisitions within each category of acquirer to see where
there are acquisition strategies that cross business lines. Of course
telecom players acquire telecom players and data center players acquire each other. But are the they acquiring MSPs or integrators?
Are distributors like Arrow moving upstream through acquisition?
These are the key acquisition trends this report aims to identify as
well as to understand whether an unusual deal (like Best Buys acquisition of MSP Mindshift) is really reflective of a trend or simply a
one-off deal that may not likely be repeated. Finally, Section 5 profiles many of the most active acquirers in seven different subsectors,
shown in the index at the left. For each, weve identified some of
their recent acquisitions, relevant business activity, and speculated on
what types of acquisitions they may make next.
Because this report covers a rather wide swath, weve not attempted
to included every transaction or every player, but rather identify some
of the highlights that we think are important to understand, and which
are reflective of trends that will have a meaningful impact on the
evolution of the competitive landscape over the next several years.
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1
Redwood Capital: 885 Third Avenue, 25th Floor New York, NY 10022
SUBSECTOR CONSOLIDATION
Consolidation in the IT Services space is beginning to cross sub-sectors, with many
players beginning to use M&A to expand their solution sets and move into higher
margin offerings. For example, whereas the data center space has been actively
consolidating for the past decade, telecom players have now moved in, as evidenced by CenturyLinks acquisition of Savvis and Verizons acquisition of Terremark. Many industry watchers have long expected that the data center business,
being a heavy facilities-based business, to eventually find its way into the telecom
umbrella.
2002
2003
2004
2005
2006
2007
2008
2009
While other sectors in the cloud services market may be at a somewhat earlier stage
regarding consolidation, we expect that this too may likely change. The managed
services and hosting areas are two spaces we think are very likely to see increased
M&A interest. BestBuys recent acquisition of IT managed services player Mindshift is one example, we think, of how larger IT equipment vendors selling into the
SMB customer base will look to acquire services offerings as well to grow their
share of wallet and maintain a strong presence and control of the customer.
2010
2011
2012
Hosted Solutions
QCom Corp
Xeta
Cavalier Telephone
McLeod
CloudSwitch
DS3 DataVaulting
Accris
DataReturn
MCI
Qwest
Wam!Net
Cable & Wireless America
Embarq
Napster
DealTree
Dynamic Digital
Union Square Tech
Invision.com
Collaboration Online
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SUBSECTOR CONSOLIDATION (CONTINUED)

Other moves that we think may be reflective of things to come include Arrow, a
large distributor that has recently made moves upstream with its acquisitions of
telephony integrators Shared Technologies and Cross Telecom. Many distributors
have pondered moving into the integration space for some time, and the competitive implications with their channel, but few have made any significant acquisitions
(with CDWs acquisition of Berbee a few years ago being a key exception). We do
think the distributors are extremely well positioned to sell into the SMB space and
2002
2003
2004
2005
2006
2007
2008
2009
may look at other businesses, such as hosting, that they can push through their extensive channel networks to easily reach a major share of the SMB market.
Finally, there are many players, such as J2 Global, that will continue to purse a
strategy of remaining focused on their core business, in J2s case, the offering of
SaaS applications for SMBs in UC and related applications. Perhaps J2 could eventually be the right add-on for an Arrow or Avnet that wants to have a set of hosted
apps to sell through its reseller network.
2010
2011
2012
ICC
NetASPx
Abanza & Jupiter
WayThere
RoadRunner
Zintel
Lanslide Tech
Offsite Backup
Protus IP
Venali
FuseMail
Cross Telecom
Shared Technology
Nu Horizon
Richardson RFPD
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VALUATION METRICS
Shown below, and on the next several pages, are a variety of metrics providing
trading valuations for public IT services players. While the markets have improved
significantly over this time, although lots of ups and downs, some areas of IT have
done very well while others have significantly lagged.
their businesses to more of a recurring revenue model. For integrators, this involves several strategies including the migration to managed services business
models and the introduction of complementary lines of business such as cloud infrastructure services where revenue is on a contractually recurring basis. These are
core trends playing out across the IT services landscape where nearly every reseller
As shown in blue in the bar chart below, data center and managed hosting players and integrator are introducing managed services models.
all trade at very strong EBITDA multiples, in large part due to the significant
growth these players have demonstrated. Not surprisingly, growth is what the mar- For distributors and consultants, their future strategies pose much greater challengket focuses on the mostas indicated by the relatively good degree of correlation es as it requires more of a fundamental shift in their businesses. The distribution
in the scatter plot and regression line shown at the lower right.
business in particular has always operated on very tight margins (hence the 0.1x
revenue multiple below) and consulting business face the challenge of lots of oneGiven the significantly higher valuations for recurring revenue businesses, many time project oriented work. While both consulting and distribution are important
players in more traditional spaces such as system integration and distribution functions that will always remain, they do not present the same high growth as oth(which trade at 4.8x and 4.2x EBTIDA respectively) are actively trying to migrate er spaces and thus suffer on the valuation front.
2012 EBITDA and Revenue Multiples
2012 EBITDA / 2012 EBITDA Growth Rate

25.0x
16.0x
13.9x
12.0x
10.9x
10.0x
8.0x
9.2x
8.6x
8.1x
7.3x
5.9x
6.0x
4.2x
4.0x
3.1x
4.8x
3.4x
2.4x
2.0x
0.1x
Dat a Cent er
M anaged
Hosting
Web
Hosting
CLECs
20.0x
15.0x
10.0x
5.0x
1.4x
1.2x
0.0x
2012E TEV / EBITDA Multiple
14.0x
0.4x
New Voice Distribut ors Int egrat ors Consult ant s

Services
0.0x
0%
10%
20%
30%
40%
50%
2011-2012E EBITDA Grow th Rate

EBITDA
Revenue
Sources: Capital IQ, Venturewire, Redwood Capital
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Publicly Traded IT Services Companies

Financial and Operating Data
$ millions
Company Name
Stock
Price
52 Week
High
Market
Cap
TEV
Research Projections
CY 2010A
Revenue
EBITDA
CY 2011A
Revenue
EBITDA
CY 2012E
Revenue
EBITDA
Trading Multiples
Growth '11-'12
Revenue
EBITDA
TEV / Revenue
CY 2011A
CY 2012E
TEV / EBITDA
CY 2011A
CY 2012E
Data Center
Equinix
$171.9
$178.4
$8,265
$10,500
$1,220.3
$476.8
$1,606.8
$666.2
$1,901.2
$876.9
18%
32%
6.5x
5.5x
15.8x
12.0x
Digital Realty Trust
74.7
76.0
8,234
12,117
870.7
503.2
1,067.7
606.7
1,178.6
725.3
10%
20%
11.3x
10.3x
20.0x
16.7x
Telecity Group
12.7
12.9
2,530
2,788
318.0
135.1
388.3
171.9
466.3
213.7
20%
24%
7.2x
6.0x
16.2x
13.0x
Median
18%
24%
7.2x
6.0x
16.2x
13.0x
Mean
16%
25%
8.4x
7.3x
17.3x
13.9x
Managed Hosting
Rackspace
$44.7
$60.6
$6,038
$5,995
$780.6
$217.6
$1,025.1
$292.7
$1,322.9
$454.4
29%
55%
5.8x
4.5x
20.5x
13.2x
Internap
6.7
8.0
340
416
244.2
34.6
244.6
39.4
276.4
52.5
13%
33%
1.7x
1.5x
10.6x
7.9x
j2 Global
25.6
32.7
1,186
1,021
255.4
118.4
330.2
155.7
354.4
184.0
7%
18%
3.1x
2.9x
6.6x
5.5x
2.2
2.4
221
218
37.7
8.5
50.4
16.1
60.6
21.7
20%
35%
4.3x
3.6x
13.5x
10.0x
Median
17%
34%
3.7x
3.2x
12.1x
9.0x
Mean
17%
35%
3.7x
3.1x
12.8x
9.2x
134%
741%
7.9x
3.4x
91.5x
10.9x
iomart Group
Web Hosting
Web.com
Tucows
$18.8
$19.1
$878
$1,575
$120.3
$6.5
$199.2
$17.2
1.1
1.7
51
49
84.6
4.5
97.1
5.7
$467.1
-
$144.7
-
0.5x
8.6x
Median
134%
741%
4.2x
3.4x
50.1x
10.9x
Mean
134%
741%
4.2x
3.4x
50.1x
10.9x
CLECs
Windstream
Frontier
CenturyLink
Cincinnati Bell
TDS
$9.9
$13.4
$5,807
$14,712
$3,710.7
$1,812.2
$4,285.7
$1,886.6
$6,246.7
$2,437.1
46%
29%
3.4x
2.4x
7.8x
6.0x
3.9
8.2
3,874
11,810
3,797.7
1,802.9
5,243.0
2,461.6
4,946.7
2,363.5
(6%)
(4%)
2.3x
2.4x
4.8x
5.0x
38.9
41.3
24,141
45,478
7,042.0
3,639.0
15,351.0
6,518.0
18,272.7
7,501.2
19%
15%
3.0x
2.5x
7.0x
6.1x
3.6
4.2
708
3,362
1,377.0
501.6
1,462.4
522.0
1,483.3
529.0
1%
1%
2.3x
2.3x
6.4x
6.4x
21.1
32.0
2,289
3,610
4,986.8
1,063.5
5,180.5
1,127.5
5,211.7
1,153.6
1%
2%
0.7x
0.7x
3.2x
3.1x
Median
10%
8%
2.6x
2.4x
6.7x
6.0x
Mean
15%
10%
2.7x
2.4x
6.5x
5.9x
Sources: First Call mean estimates for projections; Capital IQ historical financial and operating data. Price Close 06/20/2012.
1) 1 GBP = 1.56 USD
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Publicly Traded IT Services Companies (continued)

Financial and Operating Data
$ millions
Company Name
Stock
Price
52 Week
High
Market
Cap
TEV
Research Projections
CY 2010A
Revenue
EBITDA
CY 2011A
Revenue
EBITDA
CY 2012E
Revenue
EBITDA
Trading Multiples
Growth '11-'12
Revenue
EBITDA
TEV / Revenue
CY 2011A
CY 2012E
TEV / EBITDA
CY 2011A
CY 2012E
New Voice Services

cBeyond
$6.0
$13.8
$182
$184
$452.0
$59.1
$485.4
$69.3
$489.6
$88.3
1%
27%
0.4x
0.4x
2.7x
Vonage
2.0
4.8
444
469
885.0
148.1
870.3
153.4
847.5
123.0
(3%)
(20%)
0.5x
0.6x
3.1x
2.1x
3.8x
8x8
4.3
5.4
306
282
67.8
6.3
79.8
9.0
103.2
14.2
29%
58%
3.5x
2.7x
31.3x
19.9x
Median
1%
27%
0.5x
0.6x
3.1x
3.8x
Mean
9%
22%
1.5x
1.2x
12.3x
8.6x
Distributors
Arrow
$35.0
$43.4
$3,916
$5,462
$18,744.7
$861.6
$21,390.3
$1,056.0
$21,173.6
$992.7
(1%)
(6%)
0.3x
0.3x
5.2x
5.5x
Ingram Micro
17.6
19.8
2,675
2,024
34,589.0
547.1
36,328.7
521.1
36,723.0
573.1
1%
10%
0.1x
0.1x
3.9x
3.5x
Tech Data
47.9
59.3
1,908
1,580
24,376.0
381.3
26,488.1
413.5
26,102.1
434.6
(1%)
5%
0.1x
0.1x
3.8x
3.6x
Median
(1%)
5%
0.1x
0.1x
3.9x
3.6x
Mean
(0%)
3%
0.1x
0.1x
4.3x
4.2x
Integrators
BlackBox
Insight Enterprises
$27.2
$32.8
$477
$636
$1,054.1
$114.1
$1,086.6
$113.2
$1,087.7
$99.3
0%
(12%)
0.6x
0.6x
5.6x
6.4x
15.4
23.1
685
693
4,809.9
165.0
5,287.2
193.0
5,508.5
215.1
4%
11%
0.1x
0.1x
3.6x
3.2x
Median
2%
(0%)
0.4x
0.4x
4.6x
4.8x
Mean
2%
(0%)
0.4x
0.4x
4.6x
4.8x
10.3x
Consultants
Cognizant
$60.4
$78.0
$18,376
$15,885
$4,592.4
$972.0
$6,121.2
$1,260.6
$7,550.8
$1,537.4
23%
22%
2.6x
2.1x
12.6x
Accenture
59.6
65.9
38,403
33,362
22,213.7
3,481.5
26,535.9
4,227.1
28,574.7
4,570.4
8%
8%
1.3x
1.2x
7.9x
7.3x
7.1
8.0
17,462
16,245
5,605.5
1,207.0
6,716.1
1,295.2
7,908.5
1,549.0
18%
20%
2.4x
2.1x
12.5x
10.5x
36.0
51.7
5,526
5,002
11,351.6
943.7
12,651.6
1,148.6
13,029.1
Wipro
Cap Gemini
Sources: First Call mean estimates for projections; Capital IQ historical financial and operating data. Price Close 06/20/2012.
1) 1 GBP = 1.56 USD
3%
6%
0.4x
0.4x
4.4x
4.1x
Median
1,212.3
13%
14%
1.8x
1.6x
10.2x
8.8x
Mean
13%
14%
1.7x
1.4x
9.3x
8.1x
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Public Stock Trends

While the last two years have certainly been a bit choppy for public equities, IT
services businesses with recurring revenue streams have significantly outperformed
all other sectors. While our universes are small enough that they may be subject to
individual company performance, nevertheless, the adoption of hosted offerings and
the general uptake in data center resources has provided a solid base upon which to
grow. Surprisingly, many other sub-sectors, such as integrators (BlackBox, Insight
Enterprises) and New Voice Services (8x8, cBeyond) have not faired nearly as well.
The slow economic rebound has certainly provided a difficult climate in which to
sell new IT upgrades. Going forward, we think that recurring revenue businesses
should continue to perform extremely well, regardless of the broader markets per-
formance or the economic recovery. These businesses are benefiting from the outsourcing of IT and reduction of the overall IT budget that many enterprises are increasingly focused on during challenging economic times.
Regarding private companies, the valuation trends are consistent, with recurring
revenue businesses in the hosting, managed services and cloud infrastructure areas
commanding significant premiums. Also important to note in the private market is
that for the few players of scale, the premium over smaller competitors is quite significant. We believe that this is due to the significant scarcity value of private players of scale relative to the number of larger players looking to make acquisitions.
350%
300%
250%
200%
150%
100%
50%
0%
-50%
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Data Center
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Managed Hosting
Web Hosting
CLECs
New Voice Services
Distributors
Integrators
Consultants
ACQUISITION ACTIVITY BY HOSTING PROVIDERS

The hosting area has been one of the most active sectors from an M&A standpoint.
While the capital and scale requirements make the data center and telecom markets
less viable for start-ups, hosting is a much easier and less capital intensive space in
which to launch a new business. Not surprisingly, the list of small hosting start-ups
is lengthy and the recent consolidation activity rather high.
communications and collaboration solutions. J2 focused on smaller acquisitions to

acquire customer bases that it can migrate to its platforms, or to add niche technologies. They have successfully expanded into seven key product areas and are likely
considering other spaces as well as geographic expansion as they look to increase
they presence in Europe and Asia.
Hosting Players to Remain Focused On Hosting: Our expectation for M&A

among the larger managed hosting players is that they will remain highly focused
on acquiring smaller players within their space, either to acquire customer bases or
for specialized technologies. We dont expect to see hosting companies acquiring
data center players, integrators, or even managed service providers. We believe
that managing hosting providers will entirely focus their acquisitions on acquiring
either smaller hosting players or on niche technology acquisitions to improve the
platforms they use to offer solutions or allow customers and channel partners to
manage and deploy their offerings.
Private Equity To Remain Very Active In Hosting: Private equity buyers have
also been active in the hosting area to secure platforms for growth, perhaps most
significant was Silver Lakes acquisition of GoDaddy. Other private equity deals
include Microsoft Exchange hosting player Intermedia which was acquired by Oak
Hill. In all cases, we believe these deals are simply platform acquisitions which
the financial owners intend to build up through complementary acquisitions. For
example, in parallel with its acquisition of Intermedia, a hosted MSFT exchange
player, buyout group Oak Hill also acquired Zlago to help enhance their cloud service capabilities. Oak Hill also brought in previous Savvis CEO Phil Koen, with
the intention of using Intermedia as a platform for expansion. We expect these new
J2 Highly Acquisitive: One highly active player is J2 Global which has completed private equity backed managed hosting companies to become more aggressive in
over dozen acquisitions during the past several years to expand its offerings of M&A to expand their offerings.
Selected M&A 2009 - Present

Transaction
Date
Target
Buyer
12/16/2010
Cloudkick
Rackspace
04/27/2011
Switch Media
iomart Group
02/16/2012
Young CS Technologies
Rackspace
06/17/2010
Register.com
Web.com
10/10/2011
NeoSpire
Hosting.com
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Transaction
Rev
EBITDA
Target
Value
Mult.
Mult.
Space
2.1
Cloud IT
15.7x
Online platform for cloud server management
Consultants
Digital, creative and marketing, and technical services
Consultants
SharePoint consulting services
135.1
Distributors
Domain name registration, domain name transfer, domain

name renewal
1.0x
Business Description
Hosting
Multi-platform server management, dedicated server

hosting; application hosting

Transaction
Date
Target
Buyer
06/14/2011
Zlago
Intermedia.net
01/03/2012
Voxel dot Net
Internap Network
11/24/2011
EQSN
11/01/2010
Transaction
Rev
EBITDA
Target
Value
Mult.
Mult.
Space
Hosting
Hosted desktop, hosted exchange, hosted PBX/VOIP,

software on demand, etc
33.3
Hosting
Hosting solutions, cloud computing services, hosting

infrastructure
iomart Group
3.8
Hosting
Commercial IT hosting solutions to companies
Titan Internet
iomart Group
7.6
Hosting
Webhosting services for data centers in the United Kingdom
10/26/2011
C3 Computers Limited,
Online Backup Business
j2 Global
Hosting
Virtual dedicated server hosting and secure online backup

services
02/01/2010
Comodo Communications
j2 Global
5.9
Hosting
Trust and assurance services for the Internet
07/11/2011
DataHaven
j2 Global
Hosting
Online backup technology solutions for small, medium, and

large businesses
05/05/2010
FuseMail
j2 Global
6.6
Hosting
Outsourced email hosting services to businesses and

resellers
10/21/2010
keepITsafe Data Solutions j2 Global
Hosting
Online backup services
02/06/2012
Landslide Technologies
j2 Global
Hosting
CRM solution includes contact and account management,

opportunity management, collaboration
04/01/2010
mBox
j2 Global
Hosting
Strategic marketing, branding, and media agency
01/23/2012
Offsite Backup Solutions
j2 Global
Hosting
Online backup services for small businesses.
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Transaction
Transaction
Rev
EBITDA
Target
Value
Mult.
Mult.
Space
Date
Target
Buyer
09/08/2010
Venali
j2 Global
02/10/2011
Anso Labs
Rackspace
08/02/2011
EPAG Domainservices
Tucows
03/02/2010
Innuity, Inc., Web Hosting Web.com

Business
08/03/2011
Network Solutions
Web.com
793.7
07/11/2011
Buzz Networks Limited,

Virtual PBX Business
j2 Global
07/26/2010
Alban Telecom
j2 Global
2.8
Telecom
Non-geographic numbers mobiles and accessories, call

plans, and outbound call select services
02/01/2010
Realty Telecom
j2 Global
Telecom
Realty Telecom Ltd. offers telecommunication services
02/16/2012
Zimo Communications
j2 Global
Telecom
Non-geographic numbers and online call management tools
03/01/2012
Zintel Communications
j2 Global
12.9
Telecom
Provides telecommunication services and solutions for

businesses
www.redcapgroup.com
17.0
1.7x
Hosting
Internet fax services to various corporations.
Hosting
Software and services for private cloud computing

infrastructure
2.1
Hosting
Domain registration services for resellers and corporate

clients
1.4
Hosting
Design, acquisition, and integration of applications to

deliver solutions for small business
Hosting
Web-related services, including domain name registration

services, Web site hosting, Web site design, e-mail, SSL
certificates
Telemarketing
services, such as call recording,
8.8x
New Voice
Services
intelligent/call routing, and numbering services
10
DEAL PROFILESHOSTING
Weve profiled two deals below that we think are interesting moves indicative of bought relatively small, solution specific players in an effort to expand their offerwhat we can expect to see from the larger managed hosting players in the future. ings into new markets.
First is the acquisition of SharePoint911 by Rackspace which focused on SharePoint managed infrastructure. Second is the expansion by J2 into the CRM space
with its acquisition of Landslide Technologies. In both cases, these larger players
Young CS Technologies / Rackspace Hosting:
Landslide Technologies / j2 Global:
Target: Young CS Technologies-SharePoint911
Target: Landslide Technologies
Acquirer: Rackspace Hosting
Acquirer: j2 Global
Date: February 2012
Date: February 2012
Description: "For several years, Rackspace has focused on

providing managed SharePoint infrastructure," says John
Engates, chief technology officer at Rackspace. "We are
thrilled to have the world-class expertise of SharePoint911
on our team to give us greater application delivery service
capabilities. SharePoint911 will add the talent and expertise
to our teams to make SharePoint deployments easier for our
customers while increasing their scalability and performance through better integration of the workload and infrastructure."
Description: "The Landslide acquisition reflects continued

execution of our plan to expand our array of cloud-based services for business," said Hemi Zucker, CEO of j2 Global.
"Landslide brings us a proven CRM platform for small to midsized businesses and an established customer base. It also provides us an additional value-added service to sell through our
existing sales channels and into our existing base of more than
2 million paid cloud service subscribers."
Source: Rackspace press release, Rackspace Acquires SharePoint911, Feb 16, 2012.
www.redcapgroup.com
Source: j2 Global press release, j2 Global Acquires Cloud-Based

CRM Provider.
11
ACQUISITIONS BY DATA CENTER PROVIDERS

The data center space has continued to see the consolidation trend play out with
larger players continuing to expand their core businesses along with the move by
telecom providers to make major acquisitions in the space. There has also been
some continued activity by private equity players, although this has slowed as the
market is maturing and many private equity players tend to be more in the exiting
than acquiring phase.
A Look to Higher Margin Offerings: While most data center players have so far
remained focused on consolidating within the data center space and tried to capture
the significant organic growth opportunities, as the market matures we expect to see
larger data center players move further in to managed hosting and cloud infrastructure areas. Currently, there are numerous start-ups leveraging proprietary IP to
offer new IaaS services including dedicated and metered server capacity, cloud
computing, and even hosted desktop and webtop solutions. These, along with manTelecom Players Moving In: Perhaps in the final phase of the consolidation, tele- aged hosting of certain enterprise applications, may serve as complementary, higher
com players have acquired data center players themselves, most notably Centu- margin solutions that could allow data center players to continue to growth their
ryLinks $3.1 billion acquisition of Savvis and Verizons $1.9 billion acquisition of businesses and take a greater wallet share of customer IT needs.
Terremark. Eventually we expect that a significant share the data center market
will be owned by telecom providers and expect to see other large transactions in the
near futre.

Transaction
Date
Target
Buyer
02/14/2011
Alog
Equinix
08/02/2010
Internet Facilitators
Limited
09/23/2011
Transaction
Value
Rev
Mult.
EBITDA
Mult.
Target
Space
127.0
Data Center
Collocation (Carrier Nuetral) / Managed Hosting, expansion

into South America
Telecity Group
33.5
Data Center
Colocation (Carrier-neutral), bolstering NW England

presence
The UK Grid Network
Telecity Group
18.1
6.5x
8.0x
Data Center
08/08/2011
Data Electronics Group

Limited
Telecity Group
143.3
6.7x
13.9x
Distributors
06/01/2020
FusePoint
Savvis
124.0
10.4x
Hosting
Managed Hosting / Colocation, expansion into Canada

(financial services)
11/01/2011
Perimeter Technology
Center
Colo4
Hosting
Co-location and managed hosting services; monitored and

managed services, etc
06/01/2010
SAVVIS Canada
Savvis
169.4
Managed
Services
Application and infrastructure managed solutions for

mission critical enterprises
www.redcapgroup.com
3.6x
15.4x
Colocation (Carrier-neutral), consolidating England market

Collocation (carrier nuetral), expansion into Ireland
12
DEAL PROFILESDATA CENTER

Profiled below are two deals that reflect a few key trends indicative of the M&A
activity being led by data center players. First is a geographic expansion by
Equinix with its acquisition of Alog in the South American market. In fact, many
of the deals by Equinix and Telicity recently have been expansions into new international markets.
The second deal is Savviss acquisition of Fusepoint, also a geographic expansion

as well as a further building of Savvis hosting business, (which as noted in the
quote below) was specifically made to move into Canada, in part at the request of
Savvis customers.
Alog / Equinix:
Fusepoint / Savvis
Target: Alog
Target: Fusepoint
Acquirer: Equinix
Acquirer: Savvis
Date: February 2012
Date: June 2010
Description: The investment extends Platform Equinix(TM)

to the South America market, creating a footprint of 95 data
centers across 37 global markets. It also gives Equinix the
ability to satisfy strong demand from its network, content,
cloud and financial services customers looking to establish a
presence in the rapidly growing Brazilian market, the world's
seventh largest economy and the second largest IT market in
emerging markets behind China.
Description: "The acquisition of Fusepoint is a step toward one

of our most important goals to expand our geographic presence
around the world," said Jim Ousley, Savvis chairman and chief
executive officer. "Our largest customers have been asking us to
expand into Canada, and the acquisition of Fusepoint allows us
to do so in a seamless and efficient manner. Our best-in-class
product set and strong vertical market focus meshes well with
Fusepoint's fast growth and deep penetration of Canadian enterprises. Fusepoint has a great track record and extends Savvis'
reach into the highly promising Canadian hosting market including Toronto, the financial center of Canada."
Source: Equinix press release, Equinix completes the acquisition

of Alog, April 26, 2011.
Source: SAVVIS press release, Savvis to Acquire Canadian-Based

Fusepoint, June 1, 2010.
www.redcapgroup.com
13
ACQUISTIONS BY TELECOM PROVIDERS

Telecom Players Likely to Acquire Most Broadly In IT Services: Telecom
players have probably been the most active group of acquirers, using M&A to move
into a variety of new areas. TDS moved into managed services with its acquisition
of OneNeck. Verizon and CenturyLink moved into the data center space and managed hosting areas with acquisitions of Terremark and Savvis, and Windstream
moved into the hosting area with its acquisition of Hosted Solutions. Going forward, we expect to see much more of all of the above.
Acquisitions Into New Services Likely to Be Pursued By Large and Small Services Providers Alike: Going forward we expect to see telecom players across the
board, from large ILECs to smaller CLECS and RLECs expand their service offerings with acquisitions of data center and hosting providers, and managed services
businesses. Since telecom providers offer connectivity services and have large field
service work forces with the ability to go on-premise as needed, they are extremely
well suited to offer a wide range of cloud services, including managed services and
managed hosting which can at times require on premise support.
New Services Exacerbate Economy of Scale Advantages: While, telecom players will continue to consolidate among themselves, as they also expand into new
offerings such as data center and managed services, the increasingly greater
economy of scale advantages that they achieve will only exacerbate the pressure
on smaller, regional players and CLECs to partner up. Perhaps most aggressive in
this regard has been Windstream which has acquired numerous companies over the
past few years, the most significant of which was PAETEC for $2.4 billion in 2001.
PAETEC itself had expanded broadly, acquiring a telephony integrator (Xeta) and
other service providers including McCloud and Cavalier.

Transaction
Date
Target
Buyer
04/18/2012
Knology
WOW! Internet
03/21/2012
Arialink Broadband
Zayo
02/06/2012
SureWest
Consolidated
Communications
08/01/2011
PAETEC
Windstream
06/28/2011
OneNeck
TDS
04/27/2011
Savvis
CenturyLink
www.redcapgroup.com
Transaction
Value
Rev
Mult.
EBITDA
Mult.
Target
Space
1,574.9
3.0x
8.8x
Telecom
18.0
Video, voice, data, and communications services to
residential, business customers
Data Center
Internet access solutions, like DSL, T1, direct-to-business

fiber optic Internet solutions
564.6
2.3x
6.6x
Telecom
Data, video, and voice services to residential and business

customers
2,356.5
1.3x
7.5x
Telecom
Integrated broadband communications services to business
95.0
2.6x
Managed
Services
Hosted application management, enterprise hosting,

infrastructure,
2,500.0
2.6x
10.9x
Data Center
Colocation / Managed Hosting, managed services growth
14

Transaction
Date
Target
Buyer
Transaction
Value
Rev
Mult.
EBITDA
Mult.
Target
Space
02/01/2011
NaviSite
Time Warner Cable
345.0
2.6x
13.0x
Hosting
Colocation (carrier-neutral), managed services offering for

SMBs
01/27/2011
Terremark
Verizon
1,400.0
4.1x
17.1x
Data Center
Colocation / Managed Hosting, to accelerate everything-asa-service strategy
11/04/2010
Hosted Solutions
Windstream
310.0
6.0x
08/17/2010
Q-Comm Corporation
Windstream
779.5
04/22/2010
Qwest Communications
CenturyLink
24,002.7
www.redcapgroup.com
2.0x
5.6x
Hosting
Infrastructure as a service solutions to companies and

enterprises
Telecom
Telecommunications services to residential and business

customers
Telecom
Communications services to residential, business,

governmental, etc
15
DEAL PROFILESTELECOM
Below are profiles to two telecom acquisitions that reflect the move by telecom technicians when an on-site visit is required, to the centralized back office support
providers into the managed services space. This is a market extremely well suited and network operations centers.
to telecom providers as it involves supporting much of the IT the connects through
the service providers network. In addition, managed services allows telecom providers to leverage many other parts of their organizations, from the field service
OneNeck / TDS:
NaviSite / Time Warner Cable
Target: OneNeck
Target: NaviSite
Acquirer: TDS
Acquirer: Time Warner Cable
Date: June 2011
Date: February 2011
Description: Our strategy is to have a robust suite of offerings, including colocation, managed services, hosting, cloud,
and solutions delivery, states William Megan, president of
TDS HMS and executive vice president at TDS Telecommunications Corp. in a press release. OneNeck brings sophisticated hosted application management and managed hosting
to our product portfolio that will enable us to leverage the
data center assets recently acquired with VISI and TEAM.
Description: The acquisition provides Time Warner Cable

Business Class, Time Warner Cables commercial services
business, an immediate presence in the managed services market with NaviSites more than 1,200 customers. Following the
completion of the acquisition, Time Warner Cable plans to
continue the exceptional service of NaviSites Enterprise customers and to use NaviSites operational expertise and enterprise-class infrastructure to meet the rapidly growing demand
for managed services offerings from Time Warner Cables
existing and future small and medium-sized business customers.
Source: TDS press release, Telephone and Data Systems to Acquire OneNeck IT Services Corporation, June 28, 2011.
www.redcapgroup.com
Source: TWC press release, Time Warner Cable to acquire NaviSite, Inc., February 1, 2011.
16
ACQUISITIONS BY SYSTEMS INTEGRATORS

The systems integration space is probably the broadest in terms of number of players and types of offerings. The thousands of small VARs, integrators, IT consultants and other players tend to focus rather narrowly, such as telephony, data, or
storage, and often specialize by a certain equipment vendor. They also tend to be
geographically focused. As a result, the fragmentation is this area is high and consolidate activity is a constant.
their internal efforts and bring in the skill sets needed to roll out managed service
offerings across their customer base.
Building Nationwide, Diversified Players: Further driving consolidation, as large
players have begun to develop focused on SMB customers, a top tier of national,
diversified players has emerged including BlackBox, Presidio, and Insight Enterprises. These and other large players will likely continue fill out their businesses by
acquiring in areas where they may be week (such as virtualization and cloud infrastructure) or in geographies in which the lack presence. In either case, because
customers tend to choose an IT partner and stick with them, acquisition of customers through acquisition of their integrators is a common strategy for growth.
Expanding Into Managed Services: Historically, much of the M&A activity by

systems integrators has involved consolidation within the sector, with integrator
acquiring integrator. However, going forward we expect to see some of the larger
players accelerate their move into managed services through acquisition. While
most integrators are introducing managed services offerings (which for many is
basically a new pricing model of what they have already been doing), many integra- Few Large Deals: As shown in the data below, most deals, even by the larger
tors are finding the transition to be quite difficult. As a result, we expect to see players tend to be small in size. Presidios acquisition of INX for $155m in Nointegrations make acquisitions of managed service providers in an effort to seed vember 2011 represents one of the larger deals in the space. This will likely also
continue to be the case given just how many players there, are how few have valuations north of a few hundred million.

Transaction
Date
Transaction
Value
Rev
Mult.
EBITDA
Mult.
Target
Space
Target
Buyer
02/28/2012
Total Convergence
Solutions
Presidio
Integrator
Life cycle services in unified communications, collaboration

and video, etc
01/31/2012
InnerWireless
Black Box
Integrator
In-building converged wireless solutions
01/10/2012
E Solutions Corporation
Knology
01/09/2012
VantiCore
eplus Technology
12/19/2011
AFCOM
iNET Interactive
11/01/2011
INX
Presidio
www.redcapgroup.com
13.8
Telecom
Rack space, cage space, virtual private servers, service

systems management
2.5
Managed
Services
Core unified communications support; network server and

infrastructure support
Integrator
Supports the educational and business development needs

of data center management, executives, and vendors
worldwide
Network routing and switching, wireless networking, WAN
optimization etc
155.2
0.4x
51.4x
Integrator
17

Transaction
Date
Target
Buyer
Transaction
Value
Rev
Mult.
EBITDA
Mult.
Target
Space
10/03/2011
Midwave
Datalink
22.4
0.3x
7.7x
Integrator
IT advisory services and infrastructure services for mediumlarge size companies
09/19/2011
Ensynch
Insight Enterprises
Integrator
Information technology consulting, project and portfolio

management consulting
07/26/2011
PS Technologies
Black Box
Integrator
Video conferencing equipment
07/25/2011
Paradigm Holdings
CACI International
61.5
1.4x
Integrator
Cybersecurity, enterprise, and mission critical

infrastructure support
07/01/2011
Netarx
Logicalis
34.0
0.6x
Integrator
IP telephony, unified messaging, IM/presence, unified

contact center, etc
06/30/2011
OpSource
Dimension Data
Holdings
Hosting
Cloud and managed hosting solutions for enterprises,

service provider, and SaaS
06/20/2011
Tushaus Computer Services Dedicated

Computing
Integrator
04/11/2011
CareCentric, Inc.,
Managed Hosting Services
Prime Care
Technologies
Hosting
01/04/2011
ProSys Information
Systems
Applied Computer
Solutions
10.5
0.0x
Integrator
Data management, infrastructure management, systems

architecture etc
10/25/2010
LOGOS Communications
Black Box
12.8
1.0x
Integrator
Voice, video, security, storage, and wireless technologies
www.redcapgroup.com
20.8x
Business process improvement, application development

and integration, etc
IT managed hosting services and assets
18
DEAL PROFILESSYSTEMS INTEGRATION

Shown below are two profiles of acquisitions by large integrators. The acquisition grator. We expect to see many more deals like OpSource as larger players find the
of INX by Presidio allows the company to both broaden its solution set as well as need to offer a cloud alternative for customers.
expand its geographic presence in the US. The acquisition of OpSource by Dimension Data brings the ability to offer cloud services to a large global solutions inte-
INX / Presidio:
OpSource / Dimension Data Holdings
Target: INX
Target: OpSource
Acquirer: Presidio
Acquirer: Dimension Data Holdings
Date: November 2011
Date: June 2011
Description: We are excited to complete the acquisition of

INX and begin moving forward as one unified company.
Bringing these two outstanding companies together enables
us to broaden our portfolio of services and solutions and to
significantly expand our footprint across the U.S., commented Kevin Penn, Presidios Chairman and a managing
director of American Securities. We are in a great position
to build on our industry leadership position and look forward to a successful 2012.
Description: OpSource brings a rich set of services, a sound

cloud architecture, and extensive experience in cloud services
that will meet immediate client needs - in addition to a cloud
infrastructure which supports development and growth in this
space. We believe OpSource provides us with an accelerated
time-to-market as their infrastructure and services are wellestablished and tested. Dimension Data is now wellpositioned to provide our clients with services that help them
at each step in their journey toward cloud architectures, said
Brett Dawson, Dimension Data CEO.
As a result of the acquisition, Presidio now employs more

than 1,800 IT professionals operating out of over 45 offices
across the United States.
Source: Presidio press release, Presidio Completes Acquisition

of INX, Inc., December 30, 2011.
www.redcapgroup.com
Source: OpSource press release, Dimension Data Acquires OpSource to Accelerate Cloud Strategy, June 30, 2011.
19
ACQUISTIONS BY HOSTED VOICE SERVICES PROVIDERS

Very Few Players of Scale: Hosted Voice Services players offer telephony related
applications such as hosted PBX, contact center and unified communications. The
players in this space tend to be rather small with some of the larger players being
companies like 8x8 and Cbeyond. Acquisition activity by these players has been
limited and focused around consolidating much smaller players, adding technology
capabilities or related applications, such as 8x8s acquisition of Contactual.
to accelerate and as mid-size business begin to take up this service, we expect larger player finally take notice.
There have already been a few acquisitions to date by players outside the space
including Shortels acquisition of M5 Networks. With many more deals like this,
new voice services will be less of a stand-alone space and more of another line of
business for telecom, hosting and telephony equipment vendors.
Beyond Small Add-ons, Hosted Voice Players are More Likely Targets Than
Acquirers: Going forward we expect that the larger voice services players will
likely be acquired themselves by telecom players or potentially larger players in the
hosting space that want to offer unified communications as part of their solution
sets for SMBs. In fact, many players like GoDaddy, Intermedia, and others offer
hosted PBX offerings. As the adoption of hosted PBX and contact center continues

Transaction
Date
Transaction
Value
Rev
Mult.
EBITDA
Mult.
Target
Space
Target
Buyer
02/23/2012
Creative Interconnect
Communications
Utility Telephone
02/01/2012
M5 Networks
ShoreTel
12/27/2011
Stage 2 Networks
09/12/2011
Consolidated
Technologies, Inc., Hosted
VoIP Division
Contactual
8x8
27.7
3.1x
07/14/2011
Alteva
USA Datanet
17.9
3.0x
06/20/2011
Zerigo
8x8
2.0
Hosting
11/03/2010
Aretta Communications
Cbeyond
4.1
New Voice
Services
05/06/2010
Central Host
8x8
1.6
www.redcapgroup.com
New Voice
Services
Phone serviceshosted solutions with phones, routers, and

dashboards
159.8
New Voice
Services
Hosted and managed phone systems
New Voice
Services
Hosted voice and data services
New Voice
Services
Cloud-based call center and customer interaction

management solutions
New Voice
Services
Unified communications and enterprise hosted VoIP

communication solutions
1.6x
-38.2x
Data Center
Virtual private server/cloud server, managed DNS hosting,

and server monitoring services
Hosted communication solutions for SMBs
Co-location/data center facilities that provide private
cloud, dedicated server hosting
20
DEAL PROFILESHOSTED VOICE SERVICES

Below are a few deals by players in the voice technology and voice services areas. latest move by 8x8 in its efforts to be the leading provider of cloud communications
ShoreTels acquisition of M5 we think may be somewhat of an inflection point solutions.
deal, indicating that even the legacy PBX providers are seeing a competitive threat
and or a need to have a hosted alternate. The 8x8 acquisition of Contactual is the
M5 Networks / ShoreTel:
Contactual /8x8
Target: M5 Networks
Target: Contactual
Acquirer: ShoreTel
Acquirer: 8x8
Date: February 2012
Date: September 2011
Description: The acquisition of M5 positions ShoreTel as a

leader in the fast-growing cloud UC market and delivers a
suite of hosted telephony solutions that is unmatched in the
marketplace, ShoreTel CEO Peter Blackmore said in a statement. This acquisition is a critical step in our evolution and
enables the company to capitalize on trends in cloud computing and advance our enterprise communications strategy.
Description: The acquisition of Contactual significantly

broadens 8x8's technological expertise and service offerings
in the hosted SaaS (Software as a Service) call center market and brings in house the only major software technology
of 8x8's service offerings that was not owned and developed by 8x8. 8x8 has been reselling the Contactual contact
center technology since 2007. This strategic investment is
one of several recent initiatives implemented by 8x8 to advance its mission of becoming the industry's premier provider of broad-based cloud communications and IaaS
(Infrastructure as a Service) solutions.
Source: ShoreTel press release, ShoreTel Acquires Hosted Unified

Communications Pioneer M5 Networks, February 1, 2012.
www.redcapgroup.com
Source: 8x8 press release, 8x8 Completes Acquisition of Contactual, Inc., September 16, 2011.
21
IT SERVICES ACQUISTIONS BY LARGE IT HARDWARE PLAYERS

The consolidation at the very largest levels of the IT industry, that led Dell and HP Dell: Dell was been very active in building its SMB services businesses. Several
to make large IT services acquisitions to better compete with IBM and its Global years ago, the company acquired managed services player Everdream and has since
Services division, has begun to play out in the SMB market as well.
completed other acquisitions and made significant internal investments as it builds
out its services offerings for SMBs.
Best Buy: Best Buy has been building its services business through the Geeksquad,
for some time, but its recent acquisition of Mindshift for $167m clearly moved the Going forward, we expect to see most large IT players that sell core equipment
company into the SMB market.
such as servers, desktops, copiers and related equipment to build out their solutions
groups. As with the distributor space, as product resale becomes more difficult to
Konica: Another notable deal in this area is copier maker Konicas acquisition of make money, players will need to move to higher margin areasand for the next
managed services player All-Covered. With its numerous copier locations around few years, thats going to be services. More importantly however, as SMBs rely
the country, Konica believes that it can leverage its position in the print space to increasingly on their solution provider or MSP to handle all their IT needs, the purexpand into other areas of IT management for SMBs.
chase decision for equipment (and many other parts of the IT infrastructure) will
shift to solution providers as customers simply wont care. Wouldnt HP and Dell
love to be able to decide where small businesses should by their technology?

Transaction
Date
Target
Buyer
02/24/2012
AppAssure
Dell
Transaction
Value
Rev
Mult.
EBITDA
Mult.
Target
Space
Backup and replication software
Hosting
11/07/2011
mindSHIFT
Best Buy
167.0
Managed
Services
Infrastructure and software services for SMB
05/24/2011
Printelligent
HP
Managed
Services
Managed document solutions
03/01/2011
Concept Group
Xerox
43.0
Managed
Services
Digital document solutions
01/31/2011
WaterWare
Xerox
Integrator
Consulting and web-hosting
01/06/2011
All Covered
Konica
Managed
Services
Desktop, server, other IT management
12/22/2010
InSiteOne
Dell
Storage
Enterprise data archiving, storage, etc
01/20/2010
Irish Business Systems
Xerox
31.0
Managed
Services
Managed print services
09/21/2009
Perot Systems
Dell
www.redcapgroup.com
4,101.3
1.6x
14.8x
Consulting
Application modernization, business intelligence, etc.
22
DEAL PROFILESLARGE IT HARDWARE

Below are a few deal profiles that reflect the major trend by large equipment pro- of the acquirers below will likely continue to acquirer in these areas to build a naviders, both manufacturers and distributors, of moving into managed services. Giv- tionwide foot print.
en that the managed services space is still highly fragmented, we expect that each
mindSHIFT Technologies / Best Buy:
Printelligent / Hewlett-Packard:
All Covered / Konica
Target: mindSHIFT Technologies
Target: Printelligent
Target: All Covered
Acquirer: Best Buy
Acquirer: Hewlett-Packard
Acquirer: Konica
Date: November 2011
Date: May 2011
Date: January 2011
Description: The transaction will accelerate

Best Buy's growth in the small and mid-sized
business IT services category, the company
said. It estimates the small and mid-sized managed services provider market is worth $40 billion.
mindSHIFT provides cloud service, data center
services and professional services to more than
5,400 US clients.
Description: As a market leader in Managed

Print Services, this acquisition puts us even further ahead by strengthening our ability to deliver
services and solutions through our channel partners to SMB customers, said Vyomesh Joshi,
executive vice president, Imaging and Printing
Group, HP. Were reinforcing our commitment
to our channel partners by bringing them a level
of technology and experience that is unprecedented in the industry.
Description: "Konica Minolta's acquisition of All

Covered will further enhance our ability to deliver
sophisticated solutions to our customer base and
accelerate the expansion of our IT services business," said Rick Taylor, Senior Executive Vice
President and Chief Operating Officer, Konica Minolta Business Solutions U.S.A., Inc. "By integrating the scalable business model of All Covered
with our extensive sales and service footprint, we
intend to deliver unmatched value to our end users
and channel partners."
Best Buy said the combination of mindSHIFT's

capabilities with its own points of distribution
through its retail, Geek Squad services and Best
Buy for Business operations will create a competitive advantage.
With HPs strength, this offering will continue

to grow, and channel partners will deliver an
unparalleled solution to help customers better
manage their print environments, said Rob
Wellman, chief executive officer, Printelligent.
Source: Forbes, BestBuy buys into Cloud with

MindSHIFT, November 7, 2011.
www.redcapgroup.com
Source: HP press release, HP Bolsters Managed

Print Services Offering..., May 24, 2011
Source: All Covered press release, Konica Minolta

Acquires All Covered, Inc., January 6, 2011.
23
IT SERVICES ACQUISTIONS BY PRIVATE EQUITY FIRMS

For years, private equity firms have studied the IT services space for SMBs and
wondered how to take advantage of the highly fragmented nature of the market.
The opportunity of consolidating small, niche players to form a nationwide company with a broad solution set has been a very tempting proposition for financial players. However, success has been rather elusive as many efforts in the space have
failed over the years.
and as the shift to the cloud puts more control in the hands of the solutions provider
(as opposed to the product vendor), we believe that build-up strategies by private
equity groups that selectively use M&A have a much greater chance of succeeding
than in the past.
Not surprisingly, private equity groups have been much more active in this space.
Just over the past 2 years, a number of notable transactions have occurred that highCloud Based Businesses Provide Better Model of Consolidation Plays: The light the move by rather large, sophisticated private equity players to take another
recent shift to managed services and SaaS models has provided a new strategy and shot at creating national players to serve the IT services needs of the SMB market.
much better model for consolidating smaller players. As SMB customers become
much more closely tied to their solution provider under recurring services contracts,

Transaction
Date
Target
Buyer
10/13/2011
Xand Corporation
ABRY
10/13/2011
CoSentry.net
TA Associates
10/10/2011
SPS
CourtSquare
09/12/2011
Bravura Networks
Technology Capital
Investors
08/08/2011
TelX
ABRY + Berkshire
08/08/2011
Plimus
Great Hill Partners
06/30/2011
Go Daddy
SilverLake +
05/23/2011
Intermedia
Oak Hill
09/25/2009
Pomeroy
Platinum Equity
www.redcapgroup.com
Transaction
Value
Rev
Mult.
EBITDA
Mult.
Target
Space
49.0
Data Center
Data center infrastructure, co-location, private cloud, and

business continuity services
Data Center
Colocation (carrier neutral)
Integrator
Design, installation, and support of voice solutions, data

networking, and converged applications
Managed
Services
Managed services offering BIT Support that include

managed IT support services
Data Center
115.0
2,250.0
81.7
Integrator
Hosting
Colocation (carrier-neutral)
E-business platform for marketing, selling, and distributing
digital goods
Hosting solutions, Web site creation tools, secure SSL
certificates
Integrator
Online business communications services
Managed
Services
Enterprise, network, and end-user technologies
24
DEAL PROFILESPRIVATE EQUITY

While both the capital raising and M&A sections of this report provide a much below are few notable transactions that we think are important to review as they
longer list of investments and acquisitions in the sector by the financial community, highlight some of the key trends discussed through our report.
Intermedia / Oak Hill Capital:
SPS / Court Square:
Pomeroy / Platinum Equity
Target:: Intermedia
Target: Strategic Products & Services
Target: Pomeroy IT Solutions
Acquirer: Oak Hill Capital Partners
Acquirer: Court Square Partners
Acquirer: Platinum Equity
Date: May 2011
Date: 2011
Date: September 2009
Description: Intermedia is the largest independent provider of managed hosting for Microsoft Exchange. Oak Hill has significant experience in the data center space (having done
both Telecity Redbus and ViaWest). As evidence that they have big expectations for Intermedia, Oak Hill installed former Savvis head
Phil Coen as CEO. While Intermedia and Oak
Hill are likely still working through the strategy,
we expect it will include at least one or more
acquisitions to broaden the solution set and
transform Intermedia into a broad Master MSP.
Description: Court Square Partners has acquired Strategic Products and Services, a leading
integrator of Avaya telephony solutions including
PBXs, call centers and a wide range of other
telephony and data solutions. This transaction is
one of several recently in the Avaya channel
others including Genstars acquisition of ConvergeOne and PAETECs acquisition of Tulsa based
Avaya dealer Xeta Technologies.
Source: Intermedia.net press release, Oak Hill Capital Partners to Acquire, May 26, 2011
Source: CapitalIQ, June 29, 2012
Description: "In spite of the downturn in the

economy, the Company has improved profitability and grown its business in 2009," said Christopher C. Froman, the Company's CEO. "We
know the IT products and services business very
well and have had great success creating value in
this space," said Jacob Kotzubei, partner at Platinum that is leading the investment. "Pomeroy has
a compelling product and service offering, strong
customer and vendor relationships, and exceptionally talented employees. We believe the management team has done an excellent job navigating the economic downturn and we look forward to supporting their growth using our full
complement of mergers, acquisitions and operations capabilities."
www.redcapgroup.com
Source: Platinum Equity press release, Pomeroy IT

Solutions, Inc. Announces, September 25, 2009
25
ACQUISITIONS BY DISTRIBUTORS
As shown in the detail below, distributors have generally stayed focused on acquiring other players at the distributor level. While there have been a few attempts by
distributors to move downstream through acquisitions of systems integrators
(CDW / Berbee, Arrow / Shared Technologies), these deals have tended to be the
exception and pose channel conflict challenges as they potentially place the distributor in competition with their customers.
oping carrier-grade platforms (similar to Jamcracker) that can provide a wide range
of applications, provisioned by MSPs through a platform that can provide integrated billing, authentication and a variety of other functions and do it in an integrated
fashion across multiple offerings. We think this presents an excellent opportunity
for distributors and would not be surprised to see some acquisitions by distributors
into this space.
Hosted Applications as a Distribution Opportunity: One area where we expect Beyond that, we expect that distributors will generally stay focused on acquiring
to see acquisitions by distributors is in the hosted applications area involving play- within their own space, bolting on other distributors with niche expertise in certain
ers offering hosted applications through an indirect channel. Currently, many technologies and components or within certain market verticals.
MSPs and integrators fill out their solution needs for customers through reseller
relationships with a variety of hosting providers such as Intermedia (for MSFT exchange), Mozy / EMC (for online backup), Global Relay (archiving & compliance),
GoDaddy (web hosting) or a long list of other players. We think these hosted offerings present excellent expansion opportunities for distributors who have expensive
networks of channel partners through which to push these offerings.
In addition, many of these applications can benefit from integration on the back-end
and there are already a few players such as Verecloud and ThinkGrid that are devel-

Transaction
Transaction
Rev
EBITDA
Target
Value
Mult.
Mult.
Space
Date
Target
Buyer
11/20/2010
Intechra Group
Arrow Electronics
101.1
01/18/2012
TechTurn
Arrow Electronics
04/03/2012
Altimate Group
Arrow Electronics
64.1
0.1x
08/08/2011
Chip One Stop
Arrow Electronics
90.7
2.0x
12/06/2010
DIASA Informtica
Arrow Electronics
132.8
0.4x
www.redcapgroup.com
1.3x
14.4x
Consultants
Information technology asset disposition, value recovery,

etc
Consultants
Llifecycle management, asset recovery, technology

management
Distributors
Distribution of enterprise information technology solutions
Distributors
Online distributor of electronic components in Japan
Distributors
Distributes technology hardware and software
26

Transaction
Transaction
Rev
EBITDA
Target
Value
Mult.
Mult.
Space
11.6x
Distributors
Distributes advanced technology semiconductor, and telco

solutions
Date
Target
Buyer
09/20/2010
Nu Horizons Electronics
Arrow Electronics
168.2
0.2x
04/06/2010
PCG Trading
Arrow Electronics
138.4
0.5x
Distributors
Technology supply chain company
10/01/2010
Richardson RFPD
Arrow Electronics
211.8
0.6x
Distributors
Distribution services for RF and wireless infrastructure

communications networks
06/27/2011
Seed International Ltd.,

Distribution Business
Arrow Electronics
Distributors
04/06/2010
Verical
Arrow Electronics
Distributors
Distributes electronic equipments, which includes digital

signal processor (DSP) and field-programmable gate array
(FPGA)
B2b marketplace for the high-tech manufacturing industry
07/06/2010
Asiasoft Hong Kong
Ingram Micro
Distributors
IT solutions for service providers, system integrators,

resellers
09/14/2010
InterAct
Ingram Micro
Distributors
Distributes data center solutions
07/14/2010
D.L.I.-Distribuio E
Logstica Para A
Informtica
Mensch & Maschine
Tech Data Corp
Distributors
Distributor of information technology products.
Tech Data Corp
34.1
Distributors
CAD/CAM solutions for mechanical and electrical

engineering
Distributors
CAD software for mechanical engineering; architectural

processes
09/12/2011
Distribution business
12/19/2011
ProDesk
Tech Data Corp
08/03/2010
Triade Holding
Tech Data Corp
61.7
0.0x
Distributors
Consumer electronics, and mobility and IT products to

retailers
08/05/2010
Shared Technologies
Arrow Electronics
252.8
1.0x
Integrator
Converged and Internet protocol telephony technology

solutions
www.redcapgroup.com
27
DEAL PROFILESDISTRIBUTORS
Weve profiled below, two recent deals by Arrow Electronics that demonstrate a into higher margin service areas that can rid on the back of their customer relationfew interesting moves by the company to expand its capabilities beyond just distri- ships but offer the ability to offer services with much greater margin potential than
bution. Intechra provides Arrow with the ability to offer product lifecycle manage- simple product distribution.
ment services while Shared Technologies provides telephony integration skills
Both deals demonstrate efforts by Arrow, along with other distributors, to move
Intechra Group / Arrow Electronics:
Shared Technologies / Arrow Electronics:
Target: Intechra Group
Target: Shared Technologies
Acquirer: Arrow Electronics
Acquirer: Arrow Electronics
Date: November 2010
Date: August 2010
Description: "Intechra serves as a continuation of our strategy to provide comprehensive services across the entire product lifecycle for our suppliers and customers," said Michael
J. Long, chairman, president, and chief executive officer of
Arrow Electronics, Inc.
Description: This acquisition builds on our strategy to diversify into faster growing, high-margin markets that are complementary to our existing businesses," said Andy Bryant,
president of Arrow ECS. "Shared represents an exciting opportunity as we add a leading player in the unified communications, telephony, and managed services industries to our
product portfolio. They bring deep customer and supplier
relationships as well as extensive industry and technical expertise."
Intechra is headquartered in Jackson, MS, and has approximately 300 employees. Total sales were approximately $75
million for the most recent fiscal year. The transaction is
expected to be $.03-$.05 per share accretive to earnings in
the first full year of operations.
Source: Arrow press release, Arrow Electronics Acquires Intechra, November 23, 2010.
www.redcapgroup.com
Shareds sales in 2009 were approximately $250 million.

The acquisition is expected to be $.10-$.12 per share accretive to earnings in the first full year of operations.
Source: Arrow press release, Arrow Electronics Acquires Shared

Technologies Inc, August 5, 2010.
28
ACQUIRER LANDSCAPE
Below are profiles of twenty-four of the larger players across a range of spaces that we think are worth analyzing to understand the likelihood of their making acquisitions
outside of their core markets an into adjacent sectors.
Managed
Hosting
Data Center
Telecom
Systems
Integration
Rackspace
Savvis (CenturyLink)
Hostway
Equinix
Telecity
Digital Realty Trust
Windstream
Ikano
Integra
TDS
BlackBox
Presidio
Fusion Storm
Insight Enterprises
New Voice Services

cBeyond
8x8
www.redcapgroup.com
Large Public
IT Players
Dell
HP
BestBuy
IT Distribution
Arrow
Avenet
Ingram Micro
CDW
29
MANAGED HOSTING
Key Points
Managed hosting providers still have the

benefit of significant growth opportunities
in their core businesses and thus dont face
the same pressure to move beyond their
current areas of focus.
As a result, we expect that most larger

managed hosting players will use M&A to
acquire niche players to better fill out their
core hosting business but do not expect to
see them expand into other areas such as
data center, managed services or onpremise support.
Over time, we expect

hosting players serve as
telecom
and
data
CenturyLinks acquisition
just the beginning.
to see managed
targets for larger
center
players.
of Savvis is likely
Hostway and Rackspace could well be

targets in the managed hosting area
for larger players.
www.redcapgroup.com
30
Hosting
RACKSPACE
Selected M&A Activity

Rev
Rackspace Hosting (NYSE:RAX) provides cloud computing services,

managing Web-based IT systems for small and medium-sized
businesses, and large enterprises worldwide.
Its service offering combines hosting on dedicated hardware and on
multi-tenant pools of virtualized hardware in a way that suits each
customers requirements.
The company offers dedicated cloud services comprising customer
management portal and other management tools for managing the
data center, network, hardware devices, and operating system
software.
It offers cloud servers for computing, and cloud files for storage, as
well as cloud applications, such as email, collaboration, and file
back-ups; and hybrid hosting that provides hosted computing on
dedicated hardware and on pools of shared resources.
Date
Target
Pric e
Mult.
--
--
IT consulting services
2/10/11 Anso Labs
--
--
Cloud consulting services
12/16/10 Cloudkick
--
--
Cloud server management
--
Online storage services
--
Email hosting services
10/22/08 Slicehost/Jungle Disk
28.0
4/25/08 Mailtrust
--
Key Financials
2011 Rev:
$1,025m
Cash:
$160m
2011 EBITDA:
$293m
Debt:
$139m
2011 Net Income:
$76m
Market Cap:
$7,946m
Ownership
Publicly Traded.
NYSE:RAX
Institutional Ownership: 70%
Key Comments
Rackspace has tended to make small acquisitions, primarily of
technology-oriented businesses to help seed its internal efforts.
We think Rackspaces approach of small buys to seed internal
builds is a smart strategy that allows the company to use its
significant internal resources to avoid overpaying for expensive
assets that the company can otherwise ramp itself.
Rackspaces high trading multiples provide the company with a
strong currency to use for acquisition.
Key Executives
Lanham Napier CEO
Lew Moorman - President
Rackspace has been the subject of takeover rumors and could make
an excellent addition for a major player looking to take a leadership
position in the managed hosting market.
www.redcapgroup.com
Desc ription
2/16/12 SharePoint911
31
Hosting
SAVVIS

Rev
Savvis (Subsidiary of CenturyLink; NYSE:CTL) provides cloud,

managed hosting, managed security, co-location, professional and
network services worldwide.
The company offers hosting services comprising co-location services
for clients seeking data center space and power for their server and
networking equipment needs; and managed hosting services for
clients IT infrastructure and network needs.
Managed hosting services include cloud services, security,
virtualization, Web-based applications, business recovery, dedicated
hosting services, utility computing and storage services.
Savvis was recently acquired by CenturyLink and continues to serve
its clientstier 1 Internet servicesthroughout the United States,
Europe, and Asia.
Date
Target
Pric e Mult. Desc ription
6/1/10 Fusepoint
169.4
3.5x Infrastructure solutions
1/23/04 Cable & Wireless America 167.5

7/30/03 Wam!Net
--
Telecom
3.0 0.1x IT solutions
Key Financials
LTM (6/30/11) Rev: $1,016m
Cash:
$122m
LTM EBITDA:
$241m
Debt:
$784m
LTM Net Income:
NM
Market Cap:
$1,363m
Ownership
Savvis was acquired by CenturyLink on July 15, 2011
Key Comments
While Savvis has been acquired by CenturyLink, we expect that the
Savvis unit will continue to be a focal point for acquisitions for its
parent in the data center and managed hosting areas.
Unlike Verizon, who acquired Terremark, CenturyLink lacked any
sizeable cloud services business prior to the Savvis deal so will likely
consolidate all its efforts through Savvis and continue targeted,
smaller deals as its integrates Savvis and refines its strategy for the
combined business.
Key Executives
James Ousley CEO
William Fathers - President
Stewart Ewing CFO
Savviss future acquisition activity will likely be driven by efforts to

find ways to leverage CenturyLinks business base of business
customers.
www.redcapgroup.com
32
Hosting
HOSTWAY

Rev
Hostway (Private) provides cloud, managed, and dedicated server

hosting services to developers, startups, SMBs, and large enterprises
worldwide.
Date
4/4/07
Target
Pric e
Affinity Internet
Mult. Desc ription
--
--
Web design
2/12/04 Registry Services
--
--
Infrastructure
The Companys cloud hosting services include FlexCloud sites for

small business Web hosting; virtual private servers for root access
with dedicated resources; FlexCloud servers for instantly deploying
servers and resources on demand; and FlexCloud private servers
that offer complete customization and privacy with public cloud
technology advantages.
1/13/04 Enterprise Networks
--
--
Hosting
Hostway also provides managed hosting services that include custom

private cloud servers and customized hosting solutions; and domain,
email, and application services.
NA
6/13/03 NetNation Communications
10.1
Key Financials
Hostway is headquartered in Chicago but has offices globally,

including in England, France, Belgium, Germany, Australia and
India.
Ownership
Private company
Key Comments
While Hostway has developed a solid business, much has come
through organic growth as the company has made few acquisitions
in recent years.
Given the companys private equity ownership, we expect
Hostways shareholders are likely focused on a path to liquidity and
will thus require any acquisition to show very near term impact.
Key Executives
Lucas Roh CEO
Jay Sinder - CFO
Transactions that could be near-term accretive for Hostway would

include acquisitions of similar businesses where they are effectively
adding customers and can realize synergy through scale or cost
reductions.
www.redcapgroup.com
33
0.9x
Infrastructure
DATA CENTER
Key Trends
We expect the leaders like Equinix, Digital

Realty and Telecity to continue to solidify
their leadership positions with acquisitions
of smaller players, primarily to expand into
new geographic markets.
In fact, much of the recent M&A activity by

Equinix and Telecity has been aimed at
moving into new markets in Asia, Latin
America, Ireland, and other locations.
While data center players will likely to

continue to consolidate smaller players, the
more significant trends will likely be
continued consolidation between data
center players and telecom service
providers as well as the expansion by data
center players into higher margin managed
service and managed hosted offerings.
www.redcapgroup.com
34
Data Center
EQUINIX

Rev
Equinix (NasdaqGS:EQIX) provides data center services to protect

and connect the information assets for enterprises, financial
services companies, and content and network providers. The
Company connects businesses with partners and customers through
a platform of data centers containing dynamic ecosystems and the
broadest choice of networks.
Equinix offers:
Data service centers and co-location services.
Interconnection services across physical and
exchanges.
IT infrastructure services.
Date
Target
Pric e
Mult.
Desc ription
5/1/12
Asia Tone Limited
230.5
--
Data center
2/21/12
Carpathia Hosting
1.5
--
Hosting solutions
10/21/09 Switch & Data Facilities
870.2
4.3x
7/29/09
Upminster
28.2
--
Data center
2/5/08
Virtu Secure
25.6
--
Data center
6/28/07
IX Europe
558.1
7.1x
Data center
internet
Equinix provides its cloud-based products and services through a

global network that spans more than 38 markets across 13 countries
and 4000 businesses.
Interconnetion
Key Financials
2011 Rev:
$1,607m
Cash:
$915m
2011 EBITDA:
$666m
Debt:
$3,099m
2011 Net Income:
$94m
Market Cap:
$7,709m
Ownership
Publicly Traded. NasdaqGS: EQIX
Key Comments
As one of the leading data center players, Equinix faces the
challenge of how to continue pursuing acquisitions in a way that will
make a material impact on its business and better position the
company against highly capitalized telecom competitors.
Over time, we expect that Equinix may begin using M&A to move
into newer cloud services offerings including high end managed
hosting and specialized IaaS offerings for enterprise customers.
Key Executives
Stephen Smith CEO and President
Keith Taylor - CFO and Principal Accounting Officer
Continued Geographic expansion will also be a key part of M&A for

the company going forward as it continues to build out its global
footprint. Look for more international deals like its recent Asia
Tone acquisition.
www.redcapgroup.com
35
Data Center
TELECITY

Rev
Telecity Group (LSE:TCY) provides network independent data

centers that offer colocation and related services in Europe. The
Company offers:
Hosting and support services.
IT infrastructure design and consulting services.
Network and connectivity services.
Internet security, including firewalls, intrusion detection and
prevention, and distributed denial of service mitigation.
Data storage including backup and disaster recovery
Server management and performance optimization
Telecity Group provides its clients with cloud-based technology and
services through a global network that spans 29 data centers in
Amsterdam, Dublin, Frankfurt, London, and other major European
cities.
Date
Target
9/23/11 UK Grid Network
18.1
8/8/11 Data Electronics Group
143.0
6.5x Data center

6.7x Telecom
8/2/10 Internet Facilitators
30.7
--
Data center
8/20/06 Globix Holdings
62.1
--
Hosting services
11/2/05 Redbus Interhouse
104.6
3.0x Data center
Key Financials
2011 Rev:
$379m
Cash:
$35m
2011 EBITDA:
$168m
Debt:
$296m
2011 Net Income:
$67m
Market Cap:
$2,474m
Ownership
Publicly Traded. LSE:TCY
Key Comments
CEO Mike Tobin recently stated Looking forward, there is still
significant growth for us to capture, both in our existing markets
and in new markets in Europe, as the Internet continues to grow and
the cloud increases in significance.
Key Executives
Michael Tobin CEO and Director
Brian McArthur-Muscroft Group Finance Director and Director
We expect Telecity to continue building out its core data center

business with bolt-ons in existing markets and other small deals that
bring it into new geographic markets.
www.redcapgroup.com
36
Data Center
DIGITAL REALTY TRUST


Rev
Digital Realty Trust (NYSE:DLR) engages in the ownership,

acquisition, development, redevelopment, and management of
technology-related real estate.
The Company focuses on strategically located properties containing
applications and operations critical to the day-to-day operations of
technology industry tenants and corporate enterprise datacenter
users, including the information technology departments of Fortune
1000 companies, and financial services companies.
Digital Realty Trusts property portfolio consists of Internet gateway
properties,
corporate
datacenter
properties,
technology
manufacturing properties, and regional or national offices of
technology companies.
Date
Target
3/12/12
Lewisville LSF
123.0
--
Data center property
2/27/12
Convergence Business Park123.0
--
2/21/12
Carpathia Hosting
1.5
--
1/4/12
360 Spear Street
85.0
--
1/4/12
760 Doug Davis Drive
63.0
--
10/6/11
11085 Sun Center Drive
30.0
--
Key Financials
LTM (3/31/12) Rev: $1,100m
Cash:
$26m
LTM EBITDA:
$627m
Debt:
$3,272m
LTM Net Income:
$167m
Market Cap:
$7,687m
As of December 31, 2008, the Companys portfolio consisted of 75

properties, including 62 located in North America and 13 located in
Europe.
Ownership
Publicly Traded.
NYSE: DLR
Key Comments
Digital Realty Trust has pursued a fairly aggressive consolidation
strategy, using acquisitions to build a large data center business,
now rivaling Equinix in scale.
Similar to Equinix, DLR faces a challenge due to its size of how to
continue M&A in a way that makes a meaningful impact. We
suspect that the company will begin expanding further into cloud
infrastructure services and managed hosting, as indicated by its
deal with Carpathia early this year.
www.redcapgroup.com
Key Executives
Michael Foust CEO and Director
William Stein CFO
37
TELECOM
Key Points
Telecom providers are well positioned to

offer a range of IT services to SMB
customers. With the connectivity into the
customer and the field service teams to go
on-premise as needed, many telecom
providers are aggressively looking to expand
their solution sets into higher margin
services.
Look for telecom providers to move into

managed IT services along with hosted
applications around telephony.
Weve
recently talked with several CLECs
specifically interested in hosted telephony.
On the managed services front, we expect

more deals like TDSs acquisition of IT MSP
OneNeck which allows them to support and
manage the core areas of the customers IT
infrastructure including the desktop,
servers and networks.
On the data center front, we suspect most

smaller CLECs will leave that to large
carriers such as Verizon and CenturyLink,
which acquired Terremark and Savvis
respectively.
www.redcapgroup.com
38
Telecom
WINDSTREAM

Rev
Windstream (NasdaqGS:WIN) has two main business components:

Advanced network communications for U.S. businesses.
Broadband, phone, and TV services to rural consumers.
The network communication portion of Windstream offers both
cloud computing and managed services to provide multi-site
networking, high-speed Internet access, data center services,
Ethernet transport, and special access services.
The consumer portion of Windstream includes online backup,
Internet security, call waiting, caller ID, and call forwarding. In
addition, the company sells broadband modems, home networking
gateways, personal computers and home phones.
Windstream is based out of Little Rock, Arkansas, and has a network
that includes over 3 million access lines and 115,000 fiber optics
plants in the United States.
Date
Target
Pric e
8/1/11
PAETEC
2,356.5
11/4/10 Hosted Solutions
310.0
8/17/10 Q-Comm
779.5
Mult. Desc ription

1.2x Broadband communication
6.0x IaaS services
--
11/24/09 Iowa Telecommunications 1,139.6
4.4x Telecom services
11/3/09 NuVox
1.1x Telecom services
721.8
Key Financials
2011 Rev:
$4,286m
Cash:
$227m
2011 EBITDA:
$1,887m
Debt:
$9,270m
2011 Net Income:
$172m
Market Cap:
$6,659m
Ownership
Publicly Traded.
NasdaqGS:WIN
Key Comments
While Windstream as been a very aggressive acquirer over the past
few years, pushing its way into the business market, its recent
earnings challenges and restructuring will likely impact future M&A.
The PAETEC and Iowa deals have given Windstreams management
plenty of near-term integration work to focus on, likely limiting the
chances of the company pursuing another $1 billion plus deal
anytime soon.
Key Executives
Jeff Gardner CEO and President
Anthony Thomas - CFO
Going forward, we expect the company to focus on smaller deals

that will be accretive near-term. This may spell out deals that
move it further into managed services or hosting.
www.redcapgroup.com
Communication solutions
39
Telecom
IKANO
IKANO Communications is an IP applications solutions company

specializing in wholesale, retail, and private label ISP services.
Through numerous strategic acquisitions, IKANO has been able to
expand its retail brand platform
Retail - Many of IKANOs largest retail brands were acquired
including DSL Extreme, ISP.com (part of Dialup USA),
Auracom/Interhop (Canada), Amerion and Ohio Hills. DSL Extreme is
the Companys largest retail brand, with a combination of consumer
and business DSL subscribers.
Wholesale - IKANO has approximately 1,000+ wholesale customers.
The Companys typical wholesale customer is a smaller, regional
dialup ISP wishing to leverage IKANOs lower cost, aggregated telco
network.
Private label - Private label is IKANOs original business,
providing branded dialup access, related IP services and branded
billing and call center support to partners and their end users.

Date
Target
Rev
Mult.
Price
12/1/09 Defender Technologies
Description
--
Hybrid cloud services
3/31/06 DSL Extreme
--
--
Hosted email, web hosting
8/18/05 Dialup
--
--
Wholesale internet services
6/1/05
CookeNET
--
--
dial-up and wireless internet
6/1/05
CompuWise.net
--
--
dial-up and wireless internet
--
--
hosting, website design
3/19/05 Amerion
Key Financials
n/a
Ownership
Privately held. Main investor is Insight Ventures.
Key Comments
Ikanos is a relatively small public company but one that is well
backed financially. Insight Ventures is a major equity holder.
The Company has made a number of small acquisitions in recent
years and we suspect will likely pursue other niche deals in cloud
services, hosted applications and managed services.
Key Executives
George Naspo, President and CEO
Douglas Pollei, VP Internet Strategy and Corp Dev
Shaun Hoggan, Director of Telecommunications
While Ikanos is a small player, they have an attractive business

model and public currency that can be used to consolidate smaller
players that like the ability to continue to participate in their
investment, but as part of a larger story and a public vehicle.
www.redcapgroup.com
40
Telecom
INTEGRA

Rev
Integra Telecom (Private) provides voice, data, and Internet

communication services. The Company offers:
Voice services such as business lines and conference calling.
Various products spanning the voice and data, private
networking, high-bandwith data transport, and Ethernet
sectors.
Online data storage including back up and data recovery
services.
Integra provides these services via the cloud owns a nationally
acclaimed fiber-optic network that spans a metropolitan area
network of over 160,000 fiber miles.
The Company provides its services throughout the Western United
States and serves more than 200 business communities.
Date
Target
10/18/10 National Brands
--
--
Communication services
3/19/07 Eschelon Telecom
707.3
2.4x Communication services
2/7/06
247.3
1.6x Network services
Electric Lightwave
Key Financials
Rev:
N/A
Cash:
N/A
EBITDA:
N/A
Debt:
N/A
Net Income:
N/A
Market Cap:
N/A
Ownership
Private company
Investors icluding Goldman Sachs and Tennenbaum.
Key Comments
Itegra is privately held with investors including Goldman Sachs and
Tennenbaum.
Key Executives
We expect the company to remain acquisitive and to likely add on

new services outside their core network services business.
Kevin OHara CEO and Director
Potential areas of interest could include managed services with a

focus on mid-size enterprises and network support, and cloud
infrastructure offerings.
Jesse Selnick - CFO
www.redcapgroup.com
Jim Huesgen President
41
Telecom
TDS

Rev
Telephone & Data Systems (NYSE:TDS) operates under three brands:

U.S. Cellular - Provides a range of wireless services,
including pre and post paid service plans, national consumer
plans, business rate plans, smartphone data and messaging
as well as wireless devices.
TDS Telecom Provides voice, Internet, and entertainment
services as well as business solutions. The voice services
include VOIP, voice mail, caller ID and call forwarding.
Suttle-Straus Specializes in corporate communications,
direct mail and advertising materials, specifically for the
Wisconsin and Chicago Markets.
Telephone & Data Systems provides these services through a global
network that spans more than 5.9 million customers and 1.1 million
wireline equivalent access lines.
Date
Target
6/28/11 OneNeck IT Services
95.0
2.6x ERP solutions
12/15/10 Team Technologies
47.0
4.7x Data Center Facilities
3/22/10 VISI
18.2
1.6x Internet and cloud services
8/3/09
Union Telephone
--
10/24/08 The State Long Distance

11/30/07 West Point Telephone
--
Telecom services
27.0
--
Telecom services
6.8
--
Telephone and data services
Key Financials
2011 Rev:
$5,181m
Cash:
$810m
2011 EBITDA:
$1,128m
Debt:
$1,531m
2011 Net Income:
$201m
Market Cap:
$2,643m
In 2010 the company acquired VISI, which specializes in internet and

cloud services, including storage, security, and disaster recovery.
Ownership
Publicly Traded. NYSE:TDS
Institutional Ownership:
64%
Key Comments
TDS has pursued a fairly active plan to broaden its services into a
range of related areas include managed services (through OneNeck),
data center facilities (through Team Technologies) and Internet and
cloud services (through VISI).
Key Executives
LeRoy Carlson CEO and President
Kenneth Meyers - CFO
Going forward, we expect TDS to continue its strategy of acquiring

smaller players in new markets to continuing building out their
fairly diversified SMB services capabilities.
www.redcapgroup.com
42
SYSTEMS INTEGRATION
Key Points
Integrators are extremely well positioned to

provide managed services and we expect
many SIs to pursue this through a
combination of internal efforts along with
small, selective acquisitions.
Most large integrators have been generating

recurring service revenue for some time. In
particular,
by
selling
their
own
maintenance contracts and supporting
these commitments with their network
operations centers and remote diagnostic
capabilities, many integrators have had
rather
significant
managed
services
businesses for sometime.
However, to truly take ownership of the

customers IT infrastructure and offer the
full range of services, from help desk and
patch management to guaranteed service
levels, many integrators will have to
significantly refine and enhance their
capabilities and staff to compete with the
growing pure-play MSPs.
www.redcapgroup.com
43
Systems Integration
BLACKBOX

Rev
Black Box (NasdaqGS:BBOX) provides network infrastructure services

for communications systems worldwide.
Its services include design, installation, integration, monitoring, and
maintenance of voice, data, and integrated communications
systems.
Date
Target
10/25/10 LOGOS Communication

10/5/09
Quanta Systems
3/30/09
Scottel Voice & Data
Pric e
Mult.
Desc ription
12.8
1.0x
Communication
---
--
Security
--
Distribution
10/16/07 B&C Telephone
10.7
0.6x
12/21/05 Nextira One
97.3
--
103.1
0.4x
Telecom systems
Network solutions
The company also offers voice communications solutions,

technology product solutions, premises cabling, and other datarelated services, and provides technical support services for its
solutions.
12/20/04 Norstan
LTM (3/31/12) Rev: $1,088m Cash:
$22m
Black Box offers hotline services, consultation, site surveys, design

and engineering, project management, single-site and multi-site
installations, remote monitoring, and certification and maintenance
of voice, data, and integrated communication solutions.
LTM EBITDA:
$97m
Debt:
$180m
LTM Net Income:
NM
Market Cap:
$390m
Black Box offers its services in a global network that serves 141
countries and 175,000 clients across every major industry sector.
Key Financials
Ownership
Publicly Traded.NasdaqGS: BBOX
99%
Key Comments
While Black Box has not been very acquisitive in recent years, we
believe the Company will need to consider M&A to migrate its
business more into managed services and cloud infrastructure.
Areas we think BlackBox should consider include basic IT managed
services for SMBs to complement its strong integration presence in
this area as well as hosted or managed telephony providers.
Key Executives
Terry Blakemore CEO and President
Michael McAndrew - CFO
Blackbox could also be well suited to building or acquiring a cloud

infrastructure business to offer storage, metered server and other
infrastructure offerings. Many smaller players in the market have
been taking a similar approach and converting many of their existing
customers into customers for this new offering.
www.redcapgroup.com
Communication
44
Systems Integration
PRESIDIO

Rev
Presidio (Private) designs, develops, deploys and manages

technology infrastructure. The Company has two major components:
Technology solutions Presidio offers solutions such as
unified communications, network security, life cycle data
management and storage, and infrastructure via the cloud.
Implementation Presidio offers management and support
services, resells computer hardware, and offers leasing and
financing solutions for its customer base, which spans
government agencies, colleges, financial institutions and
businesses.
Presidio offers its cloud based services across the continental United
States combining both IT professionals and consulting engineers.
Date
Target
Pric e
2/28/12 Total Convergence

11/1/11 INX
Mult.
Desc ription
--
IT solutions
-155.2
--
IT solutions
10/1/06 Solarcom Holdings
--
--
IT solutions
1/3/06
--
--
Network solutions
Ficomp
Key Financials
2011 Rev:
N/A
Cash:
N/A
2011 EBITDA:
N/A
Debt:
N/A
2011 Net Income:
N/A
Market Cap:
N/A
Private company
Key Comments
Key Executives
Robert Cagnazzi CEO
Rudy Casasola - President
While we expect M&A to continue to be a part of the companys

strategy, we suspect that most targets will likely be players with
specialty strengths in the areas of network integration and
consulting (Such as INX which focuses on Data Center). We would
also expect to see the company look at managed service players
with a focus on mid-size and large enterprises.
www.redcapgroup.com
Infrastructure
--
Ownership
Presidio, owned by American Securities, was built in part through

acquisitions under its previous investor Columbia Capital. After
some hard integration work, Presidio has grown substantially with
revenues likely pushing $1 billion.
0.4x
12/28/09 Coleman Technologies
Ralph Cruikshank - CFO
45
Systems Integration
FUSION STORM

Rev
Fusion Storm (Private) provides IT consulting services, technology

solutions, and support services. Fusion Storm offers:
Data center consulting this sector provides data center
solutions including servers, storage, client virtualization,
data protection and business continuity.
Business software solutions this sector provides enterprise
content management (ECM) solutions such as content and
process management and disaster recovery.
Security and compliance services this sector offers remote
management as well as secure cloud hosting.
Fusion Storm provides its cloud-based products and services
throughout the United States and is headquartered in San Francisco.
The Company is partnered with over 75 vendors to serve its growing
customer base.
Date
Target
Pric e
Mult.
Global Netoptex
--
--
Hosting
1/5/10
Centriserve
--
--
IT solutions
12/10/09 Adexis
--
--
IT solutions
10/9/06
--
--
IT solutions
--
Digital asset delivery
--
Internet security
Jeskell
10/28/05 Intraware
7/12/05
0.6
BMD Solutions
--
Key Financials
2011 Rev:
NA
Cash:
NA
2011 EBITDA:
NA
Debt:
NA
2011 Net Income:
NA
Market Cap:
NA
Ownership
Private company
Key Comments
FusionStorm has successfully used acquisitions to build out its
expertise in specialty areas and we expect that company to
continue to remain focused on integration work, looking at players
with talents in new areas like virtualization and in new software
application areas.
Key Executives
Daniel Serpico CEO and President
Michael Soja - CFO
The companys growing cloud services areas could also benefit from
M&A, although we suspect it more likely that Fusionstorm will find
it more financially viable to build this business organically than pay
the rather high multiples many early stage cloud players on looking
to get.
www.redcapgroup.com
Desc ription
4/14/10
46
Systems Integration
INSIGHT ENTERPRISES

Rev
Insight Enterprises (NasdaqGS: NSIT) provides IT hardware,

software, and service solutions to businesses and public sector
clients.
The Companys solutions help enable, manage, and secure their
clients IT environments.
Insight offers solutions for data center, network and security,
unified communications and collaboration, office productivity,
virtualization, mobility, cloud, and data protection domains.
The Companys hardware offerings include desktop, notebook and
tablet, network and power, server and storage, and print and
consumables.
Insight provides software and licensing technology products for
office productivity, virtualization, creativity, and data protection
categories. It also offers a suite of consulting, technical, and
managed services for planning, deployment, operations, warranty,
and maintenance.
Date
Target
Pric e
Mult. Desc ription
9/19/11 Ensynch
13.1
1/24/08 Calence
160.0
7/20/06 Software Spectrum
287.0
0.2x Software provider
4/25/02 Comark
149.6
0.1x Technology products
9/3/01
Action
4/2/98
PlusNet
0.8x IT solutions
--
39.0
--
--
Computer products
--
Internet provider
Key Financials
LTM (3/31/12) Rev: $5,312m
Cash:
$133m
LTM EBITDA:
$196m
Debt:
$140m
LTM Net Income:
$105m
Market Cap:
$690m
Ownership
Publicly Traded.
NasdaqGS: NSIT
Key Comments
While Insight has not been highly acquisitive, the company is well
positioned to capture a large position in managed services for both
mid-size businesses and large enterprises.
While the company still has a great deal of integration and product
resale business that restrains its margins, its sheer size and number
of customers, as well as its breadth of solutions should allow it to
be a leader in both managed services and cloud infrastructure.
We believe that the company could benefit from a series of
managed services acquisitions that it could use to consolidate the
market of many smaller MSPs and provide greater geographic
presence.
www.redcapgroup.com
Networking solutions
Key Executives
Kenneth Lamneck CEO
Glynis Bryan CFO
47
NEW VOICE SERVICES

Key Points
With the ramp in VoIP and hosted telephony

and unified communications, the new voice
services space presents great opportunity
for players that can stitch together a set of
highly integrated solutions.
The small and mid-sized business market

has been much more focused on the uptake
of VoIP services and applications than have
been larger enterprises. As a result, we
suspect that players like cBeyond and 8x8
may have several years to consolidate and
grow their markets before seeing much
encroachment
form
larger
service
providers.
Many smaller CLECs are also looking to add

hosted telephony offerings as well, and may
provide real competitive threats given their
ability to offer a more robust set of
network services to business customers.
www.redcapgroup.com
48
New Voice Services
CBEYOND

Rev
cBeyond (NasdaqGS:CBEY) utilizes a 100% private all IP network to

provide IT and communication services solely to small businesses
throughout the United States. cBeyond offers the following services:
Local and long-distance voice and voicemail.
Broadband Internet, email, and fax-to-email.
Mobile services, including partnerships with Android and
Blackberry.
Cloud servers, web hosting, file-sharing, and data backup.
cBeyond offers comprehensive communication solutions and
installation support as well as the worlds first entirely VOIP phone
network.
cBeyond utilizes its cloud network to serve over 50,000 small
businesses throughout its service areas that include Atlanta, Boston,
Chicago, Houston, Los Angeles, San Francisco, Miami, and
Washington D.C.
Date
Target
Pric e
11/3/10
MaximumASP
11/3/10
Aretta Communications
Mult.
34.2
--
Hosting solutions
4.1
--
Hosting solutions
Key Financials
2011 Rev:
$485m
Cash:
$9m
2011 EBITDA:
$69m
Debt:
$0m
2011 Net Income:
NM
Market Cap:
$200m
Ownership
Publicly Traded.
NasdaqGS:CBEY
Key Comments
While likely not to be highly acquisitive, we expect cBeyond to try
to make more application oriented acquisitions to add new services
in telephony and unified communications.
While operating at a relatively strong EBITDA margin, the Company
is still relatively small with a market cap around $200 million, which
will likely cause the company to look at consolidating smaller
players.
Key Executives
James Geiger CEO and President
Robert Fugate - CFO
The potential upside in the Companys stock may position it as a

attractive acquirer in which to take stock.
www.redcapgroup.com
Desc ription
49
New Voice Services
8x8

Rev
8x8 (NasdaqCM:EGHT) develops and markets telecommunications

services for IP, telephony, and video applications. Core brands
include:
8x8 Virtual Office and Office Pro - Business phone service,
online meetings, Internet faxing and call recording
8x8 Complete Contact Center - Hosted call center solution
8x8 Virtual Room - Flexible video conferencing solution
8x8 IP Trunking - SIP trunking solution
8x8 Virtual Meeting - Flexible web conferencing solution
8x8 Mobiletalk - Mobile solution that reduces cell phone
international calling rates
8x8 acquired Zerigo, a cloud hosting company with a full suite of
self-service offerings enabling its customers to deploy cloud servers,
virtual private servers, geographically-aware DNS and full IPv6
support.
Date
Target
9/12/11 Contactual
Pric e
Mult.
Desc ription
27.7
3.0x
Cloud-based call center solutions
2.0
--
Provides cloud hosting
--
Interaction optimization solutions
6/20/11 Zerigo
7/30/08 Avtex
--
5/19/00 U|Force
45.2
--
Telecom software applications
5/13/99 Odisei
12.7
--
Develops carrier based IP
Key Financials
LTM (12/31/11) Rev: $80m
Cash:
$22m
LTM EBITDA:
$9m
Debt:
$0m
LTM Net Income:
$7m
Market Cap:
$285m
Ownership
Publicly Traded.
NasdaqCM:EGHT
Key Comments
8x8 has recently made several small acquisitions, mostly notably
Contactual, a hosted contact center player. We suspect that the
company will continue to look for niche add-ons the in the
application space around telephony and unified communications.
Key Executives
Bryan Martin Executive Chairman and CEO
Kim Niederman - President
While 8x8 could benefit from moving to supporting more the IT

needs of its customers, we suspect that the company will likely
remain focused on unified communications related applications.
The Companys Zerigo acquisition, while small, could allow the
company to build a very attractive and complementary cloud
services business.
www.redcapgroup.com
50
LARGE PUBLIC IT PLAYERS

Key Points
A number of large players that sell core IT

hardware such as Dell and Best Buy have
actively been building out services
businesses targeting SMBs.
Dell has actually been targeting large

enterprises as well following its acquisition
of Perot Systems several years ago.
HP has made some interesting acquisitions

into the managed print space (acquiring
Printelligent) as it looks to leverage its
position in printers through a managed
services offering in that area.
We expect to see other Large IT equipment

providers such as Staples possibly make
similar moves.
Large copier players like Xerox and Konica,

which have significant field work forces are
also acquiring in managed services as they
realize they need to migrate more into the
core areas of IP (as will Konicas acquisition
of IT MSP All-Covered).
www.redcapgroup.com
51
Large Public IT Players
DELL

Rev
Dell (NasdaqGS: DELL) provides integrated technology solutions in

the information technology (IT) industry worldwide.
The Company designs, develops, manufactures, markets, sells, and
supports mobility and desktop products, including notebooks,
workstations, tablets, smartphones, and desktop PCs, as well as
servers and networking products.
Dell also offers storage solutions, including storage area networks,
network-attached storage, direct-attached storage, and various
backup systems.
Dell provides IT and business services such as support, managed
deployment, enterprise installation, and configuration services.
Date
1/4/11
Target
Pric e
Mult. Desc ription
SecureWorks
612.0
5.1x Internet security
12/9/10 Compellent Technologies
959.2
6.1x Data storage
7/1/10
Scalent Systems
35.0
--
Infrastructure services
2/11/10 KACE Networks
123.0
--
System management
12.0
--
Data storage
2/9/10
Exanet
9/21/09 Perot Systems
4,101.3
1.4x IT solutions
Key Financials
FY2011 (2/3/12) Rev: $62,071m Cash:
$14,818m
FY2011 EBITDA:
Debt:
$9,254m
Market Cap:
$25,973m
$5,416m
FY2011 Net Income:$3,492m
Dell has a global reach across the United States, Europe, and Asia
Ownership
Publicly Traded. NasdaqGS: DELL
Key Comments
While Dell continues to struggle with its core business, we believe
that Dell looks to the services business as a way of leveraging its
customers relationships to drive its future growth.
Dell as aggressively acquired its way into the services business, both
for large enterprises (with Perot Systems) and smaller businesses
with Everdreem, Secureworks and other deals.
Key Executives
Michael Dell CEO
Stephen Felice President
Brian Gladden CFO
For future deals in IT services for SMBs, we suspect that Dell will
look to leverage its channel partner networks and look for
businesses with solutions, such as cloud brokering or other cloud
services or application delivery, that could be sold an a resale basis
through its channel.
www.redcapgroup.com
52
HP

Rev
HP (NYSE: HPQ) provides products, technologies, software,

solutions, and services worldwide. The company is divided into
several main segments:
Personal Systems Group This segment provides personal
computers, workstations, calculators, accessories, software
and service for the consumer market.
Services This segment provides consulting, outsourcing, and
technology services.
Imaging and Printing Group This segment provides printer
hardware, supplies, media and scanning devices.
Enterprise Servers, Storage, and Networking This segment
provides hosting and support for business clients.
HP Software Provides IT software, information management
solutions, and security.
HP is a global company that provides its services throughout the
United States, Europe, and Asia.
Date
Target
Pric e
8/18/11 Autonomy Corp
Mult. Desc ription
11,036.8 11.1x Infrastructure software
5/24/11 Printelligent
--
--
Printing
2/14/11 Vertica Systems
--
--
Analytics
9/13/10 ArcSight
1,654.2
8/26/10 Stratavia
7.7x Internet security
--
8/23/10 3PAR
--
Data center
2,320.1 10.9x Data storage
Key Financials
LTM (4/30/12) Rev: $124,040m Cash:
$8,311m
LTM EBITDA:
$14,745m
Debt:
$30,077m
LTM Net Income:
$5,226m
Market Cap:
$43,047m
Ownership
Publicly Traded. NYSE: HPQ
78%
Key Comments
HP is, like most large IT players, a very acquisitive company. While
recent turmoil and management changes have slowed its acquisition
activities, we expect that M&A in the services area will be an
import area of deal flow for the company going forward.
Like Dell, HP moved into large enterprise services with its EDS
acquisition and has also been moving into services for SMBs.
Key Executives
Margaret Whitman CEO and Director
Catherine Lesjak - CFO
While the Company had considered selling its computer business,

now that its decided to keep it, we suspect that HP will, like Dell
look to build a services business around the SMB customers for its
equipment to remain competitive and gain a greater share of wallet
and control over customer purchase decisions.
www.redcapgroup.com
53
BEST BUY

Rev
Best Buy (NYSE: BBY) operates as a retailer of consumer electronics,

computing and mobile phone products, entertainment products,
appliances, and related services in the United States, Europe,
Canada and China.
Best Buy provides computer hardware such as PCs, printers,
monitors, and audio speakers as well as entertainment products
such as televisions, DVD players, and video games.
The Company also has a service component, providing support,
training, and troubleshooting via the Geek Squad service.
The Company operates under many brand names, such as Best Buy,
Best Buy Mobile, The Carphone Warehouse, Five Star, Geek Squad.
Best Buy has over 3000 stores worldwide and 1000 stores in the
United States.
Date
Target
11/7/11 Mindshift
167.0
10/13/11 Xingtera
--
6/24/11 Prima Cinema
2.5
5/24/11 Valencell
5.5
12/20/10 Zeo
12.3
9/15/08 Napster
--
IT services
--
Communication
--
Movie streaming
--
Monitoring solutions
3.0x Sleep management
137.0
0.6x Online music
Key Financials
LTM (3/3/12) Rev: $50,705m
Cash:
$1,199m
LTM EBITDA:
$3,295m
Debt:
$2,208m
LTM Net Income:
NM
Market Cap:
$6,616m
Ownership
Publicly Traded.NYSE: BBY
81%
Key Comments
Best Buys acquisition of Mindshift, an IT managed services provider
for SMBs was a clear signal to the market that the services element
will be critical for anyone looking to compete in the IT space for
small and mid-size businesses.
Assuming the Mindshift deal goes well, and Best Buy weathers the
difficult retail climate, we expect the company to continue building
a broad services business which could include other offerings
including cloud services, online back-up and hosted apps.
There are several MSPs that focus particularly on SOHO customers
(like ITOK and Plumchoice) and would be excellent to allow Best
Buy to leverage its core business and sell these services through
large service providers with SOHO business customers.
www.redcapgroup.com
Key Executives
George Mikan Interim CEO
James Muehlbauer CFO
54
IT DISTRIBUTION
Key Points
Distributors have been wrestling with how

to leverage their extensive channels to
move into higher margin offerings such as
managed services, technology integration,
and hosted offerings. A few deals have
been done to date (Arrow / Shared
Technologies, and CDW /Berbee) but these
have been rather modest, relative to the
overall scale of these distributors.
The potential conflict with channel partners

presents a real concern for the viability of
distributors moving into businesses dealing
directly with the end-customers.
Hosted and managed service offerings that

can be sold on a resale basis through
channel partners could be the right
approach. Examples could include cloud
infrastructure (cloud servers, VDI, etc) or
hosted applications such as hosted
exchange and web hosting.
www.redcapgroup.com
55
IT Distribution
ARROW

Rev
Arrow Electronics (NYSE:ARW) distributes products, services, and

solutions to industrial and commercial users of electronic
components and enterprise computing solutions worldwide. The
company is comprised of two business segments:
Global Components - Distributes electronic components,
semiconductors, electromechanical devices, Broadcom-based
components, and interconnect products, including specialty
wire solutions. This segment also offers online component
design, e-commerce, and reverse logistics services.
Global Enterprise Computing Solutions Distributes
enterprise and midrange cloud computing products, services
and solutions. Provides security, storage, and backup.
Arrow provides its cloud-based products and services through a
global network that spans more than 53 countries and 120,000
worldwide businesses.
Date
Target
Pric e
4/3/12 Altimate Group
64.1
Mult.
Desc ription
0.1x
IT solutions
2/27/12 Asset Recovery
--
--
Security/Recovery
1/18/12 TechTurn
--
--
Lifecycle management
8/8/11 Chip One Stop
90.7
6/27/11 Seed International

12/6/10 DIASA
1.6x
Online distribution
17.0
--
Online distribution
132.8
0.4x
Online distribution
Key Financials
2011 Rev:
$21,390m
Cash:
$740m
2011 EBITDA:
$1,056m
Debt:
$2,281m
2011 Net Income:
$599m
Market Cap:
$4,280m
Ownership
Publicly Traded. NYSE:ARW
96%
Key Comments
While Arrow made a couple bold moves into the telephony
integration market with its acquisitions of Shared Technologies and
Cross Telecom, we suspect that the company may take some time
to digest these before considering other deals in this area.
As for future M&A, we think Arrow like the other distributors is
extremely well positioned to provide a range of hosted applications
to third party MSPs, VAR and integrators.
The cloud brokerage
model would be an excellent technology play to facilitate this and is
effectively a distribution play in itself, consistent with Arrows
historical position in the food chain.
www.redcapgroup.com
Key Executives
Michael Long Chairman, CEO and President
Paul Reilly - CFO and EVP of Finance & Operations
56
IT Distribution
AVENET

Rev
Avnet (NYSE:AVT) distributes electronic components, enterprise

computer and storage products, and embedded systems throughout
the Americas, Europe, Asia, and Oceania. The company is comprised
of two distinct business segments:
Electronics Marketing Markets and sells semiconductors,
electromechanical devices, and embedded products to a
weide variety of industries. This segment also offers services
to evaluate, design, and procure electronics.
Technology Solutions Markets and sells mid-to-high end
servers, data storage, and software products as well as the
services to implement them. This segment also focuses on
cloud computing technology and system integration.
Avnet provides its clients with cloud-based technology and services
through a global network that spans more than 100,000 businesses
around the world.
Date
Target
Pric e
Mult.
Prospect Technology
--
--
Resells ICs
5/17/11
Amosdec
--
--
Distribution/Storage
10/4/10
Eurotone Electric
3/29/10
Bell Microproducts
--
3/13/2008 Horizon Technology
--
Online distribution
613.9
0.2x
Online distribution
162
0.3x
Distribution/Integration
Key Financials
LTM (3/31/12) Rev: $26,312m
Cash:
$940m
LTM EBITDA:
$1,082m
Debt:
$2,118m
LTM Net Income:
$672m
Market Cap:
$5,316m
Ownership
Publicly Traded. NYSE:AVT
96%
Key Comments
While Avenets M&A has remained focused on distribution, we
believe the company has been looking at various opportunities for
moving into hosting including cloud brokerage.
Avnet also has a position in integration space for SMB customers
through its solutions group. While the company could also pursue
M&A more aggressively in this area, to date it has not and we
suspect may focus on organic growth.
www.redcapgroup.com
Desc ription
8/1/11
Key Executives
Richard Hamada CEO and President
Raymond Sadowski - CFO
57
IT Distribution
INGRAM MICRO

Rev
Ingram Micro (NYSE:IM) distributes IT products and supply chain

solutions worldwide.
Its service offering combines IT peripheral products such as printers,
scanners, content software creation and hosting, and many more.
The Company also offers various systems such as rack, tower, and
blade servers in addition to business application software to
increase supply chain efficiency.
Ingram Micro provides hosting, managed, cloud, and mobility
activation services and is the largest technology distributor in the
world. The Company offers its cloud based services throughout 26
different countries and over 1300 businesses.
Date
Target
Pric e
12/22/10 Arete Sistemas
7.1
--
HP solutions
11/27/09 Computacenter Distribution
4.9
--
Distribution
4/29/09 Vantex Technology Distribution

1/2/08
13.0
Paradigm Distribution
2.7
6/13/07 DBL Distributing
96.0
7/12/05 AVAD
200.0
--
RFID/Tracking
0.3x Distribution
1.0x Home electronics
2011 Rev:
$36,329m
Cash:
$936m
2011 EBITDA:
$521m
Debt:
$392m
2011 Net Income:
$244m
Market Cap:
$2,871m
Publicly Traded. NYSE:IM

Key Comments
www.redcapgroup.com
0.2x Distribution
Key Financials
Ownership
Ingram Micro has had a very limited M&A effort over the past few
years, especially for a company of its scale. We suspect that this
limited acquisitiveness will likely continue to be they case as the
company continues to operate in a difficult climate.
Mult. Desc ription
Key Executives
Alain Monie CEO and President
William Humes CFO and COO
58
IT Distribution
CDW

Rev
CDW (Private) provides IT products and services to business,

government, education and healthcare customers. The Company has
three primary segments:
Hardware - The Companys hardware products comprise
network communications, notebooks/mobile devices, data
storage, video monitors, printers, desktops and servers.
Software The software segment is comprised of licensing,
licensing management, and software services that help its
customers optimize their software investments.
Configuration The Company offers configuration services
for computer devices to integrated solutions, such as
virtualization, collaboration, security, mobility, data center
optimization, and cloud computing.
CDW offers its services throughout the United States and Canada.
Date
Target
Pric e
10/12/06 Berbee Information

11/8/03 Micro Warehouse
Mult.
Desc ription
184.0
0.5x
IT solutions
22.0
--
Online retailer
Key Financials
2011 Rev:
$9,602m
Cash:
$100m
2011 EBITDA:
$676m
Debt:
$4,345m
2011 Net Income:
$17m
Market Cap:
N/A
Ownership
Private company with public debt profile
Key Comments
While CDW made a splash with its acquisition of data integration
Berbee in 2006, the Company has yet to follow up with further M&A.
As a privately held portfolio company of private equity firm Madison
Dearborn, with suspect the company is unlikely to pursue any
material M&A.
Key Executives
Thomas Richards CEO and President
Ann Ziegler CFO and SVP
As the Madison Dearborn acquisition is now about 5 years old, its

likely that the Companys owners are more focused on exiting the
business in the next few years and not likely to make any
acquisitions that do not show very near term accretion.
www.redcapgroup.com
59
Redwood Capital Group is an investment banking firm serving the technology, communications
media, business services and other growth industries. The firm focuses on mergers & acquisitions,
corporate finance, restructuring and valuation advisory services for its clients worldwide.
New York
Los Angeles
Baltimore
885 Third Avenue

25th Floor
New York, NY 10022
Telephone:
+1 212 508 7100
Fax:
+1 212 508 7102
10900 Wilshire Blvd

Suite 300
Los Angeles, CA 90024
Telephone:
+1 310 696 4001
Fax:
+1 310 507 0263
503 Albemarle Street

Baltimore, MD 21202
Telephone:
+1 410 775 5060
London
Geneva
The Cobalt Building

19-20 Noel Street
London W1F 8GW
Telephone:
+44 (20) 7763 5800
Fax:
+44 (20) 3031 1233
17 rue du Cendrier
1202 Geneva
Switzerland
Telephone:
+41 (22) 839 72 47
Fax:
+41 (22) 839 72 49
_________________________
Copyright 2009 Redwood Capital Group LLC. This report is published solely for informational purposes and is not to be construed
as an offer to sell or the solicitation of an offer to buy any security. The information herein is based on sources we believe to be reliable but is not guaranteed by us and we assume no liability for its use. Any opinions expressed herein are statements of our judgment on this date and are subject to change without notice.
www.redcapgroup.com
60

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REDWOOD CAPITAL: SECTOR OVERVIEW

IT Services: The Evolving Cloud Service Providers

M&A in the Cloud and IT Services Sectors

This report focuses on the emerging area of managed and hosted

mid-size businesses. In doing so, we identify some of the key trends

REDWOOD CAPITAL: SECTOR OVERVIEW

IT Services: The Evolving Cloud Service Providers

REDWOOD CAPITAL: SECTOR OVERVIEW

IT Services: The Evolving Cloud Service Providers

SUBSECTOR CONSOLIDATION (CONTINUED)

REDWOOD CAPITAL: SECTOR OVERVIEW

IT Services: The Evolving Cloud Service Providers

2012 EBITDA and Revenue Multiples

2012 EBITDA / 2012 EBITDA Growth Rate

2012E TEV / EBITDA Multiple

New Voice Distribut ors Int egrat ors Consult ant s

2011-2012E EBITDA Grow th Rate

Sources: Capital IQ, Venturewire, Redwood Capital

REDWOOD CAPITAL: SECTOR OVERVIEW

IT Services: The Evolving Cloud Service Providers

Publicly Traded IT Services Companies

Digital Realty Trust

Sources: Capital IQ, Venturewire, Redwood Capital

REDWOOD CAPITAL: SECTOR OVERVIEW

IT Services: The Evolving Cloud Service Providers

Publicly Traded IT Services Companies (continued)

New Voice Services

Sources: Capital IQ, Venturewire, Redwood Capital

REDWOOD CAPITAL: SECTOR OVERVIEW

IT Services: The Evolving Cloud Service Providers

Public Stock Trends

New Voice Services

Sources: Capital IQ, Venturewire, Redwood Capital

REDWOOD CAPITAL: SECTOR OVERVIEW

IT Services: The Evolving Cloud Service Providers

ACQUISITION ACTIVITY BY HOSTING PROVIDERS

communications and collaboration solutions. J2 focused on smaller acquisitions to

Hosting Players to Remain Focused On Hosting: Our expectation for M&A

Selected M&A 2009 - Present

Online platform for cloud server management

Digital, creative and marketing, and technical services

SharePoint consulting services

Domain name registration, domain name transfer, domain

Multi-platform server management, dedicated server

REDWOOD CAPITAL: SECTOR OVERVIEW

IT Services: The Evolving Cloud Service Providers

Selected M&A 2009 - Present

Voxel dot Net

Hosted desktop, hosted exchange, hosted PBX/VOIP,

Hosting solutions, cloud computing services, hosting

Commercial IT hosting solutions to companies

Webhosting services for data centers in the United Kingdom

Virtual dedicated server hosting and secure online backup

Trust and assurance services for the Internet

Online backup technology solutions for small, medium, and

Outsourced email hosting services to businesses and

keepITsafe Data Solutions j2 Global

Online backup services

CRM solution includes contact and account management,