In an October 2011 Channel Partners reader survey, 45 percent of respondents said they will be eyeing M&A. Of course, that leaves another 55 percent saying they will not. Concerns include the absence of reliable valuation, lack of capital, challenges with vendor agreement transferability, owner ego and integration of management, employees, culture, and back-office and operating systems.
Still, despite those challenges, three quarters of respondents predict more agents, VARs and dealers will join forces in 2012. Those matchups, they said will be fueled by five overarching trends:
- Cloud technologies
- The need for recurring revenue
- A continued weak economy
- Aging partners preparing to retire
- Greater scale and influence with suppliers
Cloud Services. Earlier this year, Forrester Research predicted the global cloud computing market will hit $241 billion in 2020, up from $40.7 billion in 2011. Survey respondents argued that cloud services will spur M&A in the coming year. That’s because cloud will force more VARs to develop a recurring revenue model and, to achieve that, many will merge with or acquire synergistic rivals that have recurring revenue. Similarly, agents need to keep adding mobility, network optimization and hardware to their portfolios to avoid becoming commodity partners, and there likely will be more partnerships among agents and VARs as a result.
“The solution sale must incorporate the user equipment, transport and cloud apps," said one respondent. “You cannot ignore one area any more." Another agreed: “If done right, the customer benefits by having a unified vendor that provides the hardware and carrier services." Several respondents said such capabilities will come about as a result of M&A.
Recurring Revenue. Declining margins makes up one of the biggest problems facing telecom VARs and dealers. As a rule, these channel partners relied on hardware sales, with one-time, upfront compensation. But hosted and cloud services have eaten away at that model because they move equipment that once resided on the customer premises into data centers. Now, organizations buy or lease IP phones, not servers and other gear that historically has comprised a VAR's or dealer’s paycheck. The shift is pushing those partners to add managed services such as network monitoring to their portfolios. This results in ongoing billing to the customer, and, as a result, recurring revenue. But that doesn’t mean VARs and dealers have embraced the new approach, and M&A may be their best option for growth.
