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ScanSource to Acquire Intelisys in Bold Move

**Editor’s Note: Please click here for a recap of the biggest channel-impacting mergers in May-June 2016.**

With the impending acquisition of business telecommunications and cloud services distributor Intelisys Communications, announced Monday, by technology products and solutions distributor ScanSource, both companies and their channel partners have the opportunity to grow and enhance their recurring revenue businesses like never before.

This marriage between compute and connectivity distributors has been a long time coming with competition and crossover among the partner firms in the trenches, i.e. VARs, system integrators, MSPs, telecom agents, etc., building up over the past few years — a natural evolution as cloud and mobility take hold.

ScanSource and Intelisys are not exactly strangers – having an arms length relationship since 2013 – given that ScanSource has been a distributor of communication business solutions, i.e. IP phones, phone systems and mobile devices, from vendors such as Polycom, Avaya, ShoreTel, for years.

“Even back then, a big piece that was missing for us in our solution set was the opportunity to sell cloud and carrier services,” said Mike Baur, ScanSource CEO.

The mutual attraction between the two distributors took hold, with the question of how to get the ScanSource telecom VARs into the services business. Fast forward to 2015: Baur’s interest in moving beyond just a partnership with companies like Intelisys escalated and ScanSource’s strategy was to accelerate what it believed was the right solution set for its partners — which meant some type of services.{ad}

“We came up with this idea at the beginning of the calendar year and the rest is history,” Baur said.

The ScanSource agreement to acquire Intelisys in an all-cash deal of approximately $83.5 million plus earn-out payments is scheduled to close by Sept. 30.

Industry sentiment about the deal is positive.

“When you have an industry-leading and publicly traded equipment VAR [ScanSource] acquire one of the most successful master agencies [Intelisys] in the business, it’s certainly a great illustration of the overall strength of our channel,” said Randy Friedberg, vice president of business development at Converged Network Services Group.

Vince Bradley, CEO of WTG, sees it as a huge win. “It’s a sign of where things are shifting with telecom and IT and it’s a great thing for everyone and very exciting,” he told us.

Paul Cronin, SVP at Atrion, and a Channel Partners Advisory Board member, calls it “a great move for Scansource.”

“I think the acquisition is a very strategic play,” he said. “ScanSource is behind other distributors who provide more cloud solutions. Telecom and IT are coming together and one-source ordering makes a lot of sense. … I think Intelisys partners will have more to offer to their clients and will see the benefits; however, …

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… if the ordering process becomes more difficult or if the support they need is not as available, this could force them to look elsewhere.”

In the U.S., the SMB market spends about $150 billion on telecom services; just 10 percent of that revenue goes through the indirect channel today. The distributors see this as an ideal time to go after this market. SMBs don’t typically have a large IT staff and they heavily depend on the channel for help and support, as cloud becomes a bigger part of their future IT plans.

“We’ve always put ourselves in the position of finding markets that are underserved by the channel, but markets are going to be served more by the channel in the future than they will be by a direct sales force,” said Baur.

Tricia Wurts, president of Wurts & Associates Inc., a channel consulting business, agrees, noting that ScanSource has a track record of understanding when to get into markets ahead of the curve.

“I also think that the cultures of the two companies meld really well given their mutual philosophies of customer care and value-add,” she pointed out. Wurts also noted that Intelisys, for example, got into cloud early and launched its Cloud Services University education center for the channel.

That said, equally important to the success of this acquisition is the adoption of a recurring revenue business model by ScanSource VARs.

“This is exactly why we acquired Intelisys; they have the secret sauce on how to do this,” said Baur.

Jay Bradley, president, telecom services, Intelisys, agreed.

“This is what we do. We built the largest partner community in the nation selling recurring-revenue services,” he said, adding that the company has a number of programs to help VARs move into the recurring-revenue space.

The company’s mission has been to empower its independent sales channel to find success with the carriers and supplier partners with which it does business.

Intelisys’ Advanced Commissions Program is at the core of helping partners build an annuity stream. It allows them to get paid on a deal as soon as they book it, versus five to six months later.

“This helps solve their cash-flow problem,” said Bradley.

Another program for agents, VARs, IT solution providers, systems integrators and MSPs, is the Partner Investment Program – low interest loans that average about $75,000 – to help partners build out their businesses.

While ScanSource couldn’t comment on what a road map for bringing together the two companies channels might look like, it has a number of events scheduled for October when its partners – more than 25,000 – could expect to hear more about what’s in store post-acquisition.

Intelisys has about 2,400 sales partners.