WisBusiness: Berbee uses acquisitions to capitalize on new era of IT growth
By Brian E. Clark
A once-again growing economy, exploding volumes of email, telephone systems that link voice and the Internet, plus a pent-up urge by businesses to refresh aging technology all should spell good news for the IT industry into 2005.
Several research firms forecast increased technology spending in 2004 at between 5 percent and 8 percent. The industry is hoping figures will be even higher next year.
To meet that demand, Fitchburg-based Berbee Information Networks Corp. recently acquired a Cleveland computer consultant and a Wausau IT company. Berbee, a major regional player, was Cisco's U.S. Partner of the Year in 2003 and Microsoft's Midwest Partner of the Year. The company was founded by Jim Berbee in 1993. He remains with the company as chairman and CEO.
"2004 has been strong for us," said Paul Shain, Berbee's president. "2005 should be even better."
In addition to providing engineering expertise and selling equipment to set up what Shain called the "internal plumbing" of computer networks, Berbee also offers massive data storage centers in Madison and Minneapolis. The company uses Microsoft, Cisco and IBM as its three main platforms to offer comprehensive computing services to companies and government offices, he said.
Terms of the transactions between privately held Berbee and Cleveland's Foresight Technology Group and Wausau's Network Engineering Associates were not revealed. But Shain said he expects his company to post sales of roughly $280 million this year. It now has 525 employees in six states.
"This was a change for our office," Shain said during an interview at his company headquarters off Fish Hatchery Road. "Historically we've grown internally. But these shops were a good match for us."
The acquisition of Foresight expands Berbee's presence in Ohio and allows allow it to sell IBM zSeries mainframe computers commonly used by midsize and large corporate and government offices. Foresight had sales of $60 million sales last year and 87 employees.
Here in Wisconsin, Berbee swallowed up a growing competitor when it bought Network Engineering Associates and also filled in gaps between Appleton and Minneapolis. NEA had 22 employees and $8 million in 2003 sales.
Shain, who has been with Berbee for five years, said his company will focus on integrating Foresight and NEA into the company fold in coming months. But he said Berbee could acquire other firms next year.
"Our offices now have more things to sell," he said. "For the near future, though, we are concentrating on operations and customers and hiring new engineers the most important people in our company.
"We believe technology is a local business," he said. "Having engineering capability close to customers is very, very important to them," he said. "Our plan is to grow concentrically so we can share resources and talents.
"For us to go out and buy someone in Southern California does not make sense. It's just not in the cards," he said.
Dave Pelisek, a managing director with the Robert W. Baird Co., said Berbee is a well-run company that continues to do "great things." Baird has been an investor in Berbee for the past four-and-a-half years.
"They have increased penetration here in the Midwest and their two recent acquisitions are in sync with their growth plans," he said.
Pelisek also praised Berbee for retaining and promoting high-quality staff.
"It's an employee-friendly environment that recognizes that its greatest assets are its workers," he said. "And top managers including founder Jim Berbee - aren't afraid to roll up their sleeves sleeves and get involved."
Dan Maginot, a senior systems administrator with the Dean Health Plan in Madison, said Dean has used Berbee engineers to supplement its staff and will use them in the future.
"We've worked with them on a number of projects that were completed quite successfully," he said. "They are good."
Though Berbee has grown during the past three-plus years, Shain acknowledged that it has been a difficult period for some computer and IT companies.
The Y2K run-up produced a surge of infrastructure investment in the late '90s. There also was an Internet bubble that created a lot of artificial demand with new, well-funded companies spending a lot of money on new technology, he said.
That was followed by a downturn in the economy that lasted for nearly three years.
"We've been fortunate that our customer base has been largely traditional companies that have invested year in and year out," he said.
Shain said what is most important to him and Berbee's clients are the productivity gains fueled by technology investment.
"That's where you see the benefit to the economy of technology spending," he said.
Shain also said his company has benefited from the cyclical nature of the computer industry, where companies need to upgrade to keep up with new technology.
"There is a finite life to equipment. You cross a point where reliability and cost of keeping it up is surpassed by the technology that is out there," he said.
During the recent recession, he said companies that kept equipment for three to four years decided to hang on to it for between five to five-and-a-half years.
"Now, we are seeing a fairly aggressive refresh cycle," he said.
Shain said another technology trend benefiting Berbee is the growing demand for is voice-over-Internet-protocol a move that he said is already transforming the telephone industry.
"It converges voice and data networks to gain lots of management efficiencies and save money," he said.
"The technology has been around for three years," he said. "Now, mainstream companies are beginning to embrace it. We've seen a dramatic demand, frankly."
In the past, he said companies have paid for both voice networks and data networks. This technology, which has been around for about three years, will merge them and allow integrated messaging.
"You'll be able to listen to voice mails on your PC, and listen to emails on your phone," he said.
A second trend that is a boon to Berbee is the need by companies to more efficiently manage their servers and data storage. Mainly by default, e-mail systems have become a critical component of companies' communication and document depository systems.
"For many people, losing access to e-mail is worse than not having access to a phone," he said. "It is amazing how dependent we have become on e-mail."
He said one of the biggest challenges facing firms is that their intellectual property including contracts - is tied up in additions to e-mail.
"It's poorly organized and often kept on personal laptops," he said.
To deal with that problem, he said Berbee has launched hosted e-mail for small- and medium-sized companies that offers the functionality of Microsoft Exchange. He said many companies are interested in getting email systems that have back-end recovery capability which most of them now lack.
Improved security from remote sites, wireless applications for the health care industry and the demise of paper-based filing systems will also keep Berbee humming, Shain said.
Even though companies may outsource many of their more mundane tasks, he said they will still need their own IT people.
"It's not an all-or-nothing affair," he said. "While there is no advantage to managing an e-mail system internally, most companies will have IT people who are experts in specific applications such as law or some other profession."
With adequate access to capital to finance its acqusitions and enough profits to run and expand the company, Shain said Berbee has no plans to go public.
"We want to have as many options and flexibilities as possible," he said.
Though successful, Shain said Berbee had made its share of mistakes over the past 11 years.
"Basically, it had to do with product introductions," he said. "We thought we understood what we were doing and then had to retrench. It made us a lot more skeptical and better next time around."
His advice to other business people?
"Make sure you truly understand fully allocated - what it will cost you to deliver a product or service, whether you are pricing it correctly and does that sync up with the competitive market place," he said. "If you are at a competitive disadvantage, then you'll have to differentiate your company based on some other feature."
Shain also said his company spends a tremendous amount of time and effort to make sure projects work well for customers.
"Unfortunately, technology projects have a history of being too expensive, taking too long and not doing what they customers thought they would do," he said.
"That's not a trivial task and we measure it constantly through customer satisfaction surveys," he said.