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Uncertainty Ahead for ScanSource-Intelisys Partners

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Lynn HaberThe proposed ScanSource acquisition of Intelisys Communications – think compute distributor plus cloud and connectivity distributor – is viewed by many as a sign of the times.

ScanSource CEO Mike Baur made no bones about his company’s acquisition strategy, which is to purchase what the company is missing, i.e. the opportunity to sell cloud and carrier services.

ThinkStrategies' Jeffrey KaplanBoth ScanSource and Intelisys are interested in broadening their solution set and customer base in the SMB market, where current telecommunication spending is about $150 billion and growing.

As Jeffrey Kaplan, managing director of ThinkStrategies notes, the world is becoming more data driven; the demand for greater and better integrated compute and connectivity capabilities is escalating. At the same time, businesses would prefer to reduce the number of suppliers they must rely upon.

“So, this merger is an effort to give customers a strategic source that can supply both their compute and connectivity solutions via the cloud. It can also strengthen their ability to sell and deliver recurring revenue services,” he pointed out.{ad}

But what will it take for partners to take advantage of selling a combined compute-connectivity solution and do they view this deal as rosy as the distributors do?

Horizon's Chris Ichelson“It takes a different set of skills,” Kaplan said. “First, the sales person has to be knowledgeable re: both compute and connectivity requirements and solutions. Second, the recurring-revenue model means the sales person isn’t going to get the same level of compensation as in the past because of the way the revenue is recognized.”

Therefore, the sales person will need to win more business from more customers. This often means that partners must rely on younger sales people who have lower compensation demands, he suggested.

Chris Ichelson, co-founder of Horizon Technology Group (HTG), a hybrid solutions provider selling both in the telecom space and the IT VAR/security space, sees a skewed number problem with the ScanSource-Intelisys deal. HTG works with both Intelisys and Telarus on the telecom side.

“There’s something funny about the deal … the issue I have with it is …

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… knowing the master agent profit model, most are running at about 21 percent of what they take in house. And when I did the math on the deal … it really didn’t leave enough money to pay employees, rent on multiple offices — and also to be able to fund all of the activity they do,” he said.

Choice's Lisa CampbellBottom line said Ichelson: It looks like ScanSource possibly bought a dream and a hope. “The downside of the dream is, what’s the easiest way for ScanSource to recap the funds if the deal goes sour – you shut off the partners.”

He does see the advantage of having both compute and connectivity under one distribution roof and is surprised it took so long for this type of deal to happen in the industry.

Choice Communications is a longtime Intelisys partner and doesn’t think that Intelisys would enter an acquisition agreement if it wasn’t good for its partners.

“I think Intelisys realizes that they are where they are today because of the partner community,” said Lisa Campbell, president of Choice Communications.{ad}

Although the deal isn’t scheduled to close until sometime in September, Campbell expects that her company will have more products to sell and has been in the process of learning the language of companies on the compute side.

“We’ll definitely need engineers on the compute side as these things tie together,” she said, noting that it may take more than one partner to support a deal. To date, Choice gets great support and resources from Intelisys, she added.

Campbell ultimately expects the acquisition will impact her business in a good way, and expects to learn more at the Intelisys partner conference in October.

At the same time, her concern about ScanSource is that it’s more of an equipment distributor. “When everything is going hosted — so it almost seems like a reverse direction,” she shared, but added that the outcome and opportunity for her business remains to be seen.


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