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Channel Partners Asks: Will M&A In the Channel Pick Up in 2012?

Yes there will be some consolidation. Some VARs may want to add a communications offering. Some communication agencies may want to add the technical skills to go after a more broad communications and technology approach. All will be searching for how to add value in the sales cycle.”

Clark Atwood, President,

Concierge Communications

, master agency

 

I do believe there will be increased consolidation in the channel in 2012 but not for reasons specific to the industry. If you look at the M&A league tables, youll see that there is already a marked increase in M&A activity across many sectors and industries due to a host of external market conditions. On the buy side of transactions, one of the biggest dynamics for increased deal activity is being driven by interest rates. Cost of borrowing is at an all-time low which means companies that have free cash flow or those with strong borrowing power have access to capital like never before. Additionally, we are still in a deep recession and the contraction in spending makes organic growth for a company very difficult if not impossible. Spending money on revenue-generating activities like sales, marketing and advertising will not yield a proportional rate of return on that capital. This means that for a company with access to capital (whether their own or borrowed) to grow in these times, it has to consider growth through acquisition. They can acquire within their vertical to gain more critical mass or acquire for related diversification purposes to hedge against the down economy. On the sell side of transactions, owners of businesses will see the long-term capital gains tax rate of 15 percent (an all-time low) expire at the end of 2012. It is said to be moving back up considerably (to as high as 30 percent), which makes selling your business more lucrative than ever at this point. All of these market dynamics are essentially creating the perfect storm for increased M&A activity over the next 18 months.”

Dany Bouchedid, CEO,

COLOTRAQ

, master agency

Absolutely, you are already starting to see it. There is a value in market share, and the larger partners are willing to pay a premium for a those revenue streams to best position themselves with the surviving carriers.”

J.R. Cook, Vice President Agent Channel,

EarthLink Business

, carrier


 


 

Im definitely expecting an uptick in M&A activity in the agent and VAR communities. With cloud services really starting to take off, both agents and VARs are having to adjust to a new realty. Agents traditionally focused on transactional sales are having to invest in technical talent and resources to step in to more profitable cloud opportunities. VARs who have focused on selling boxes and professional services are needing to increase their consultative sales ability around a recurring revenue model. Both sides need each other. Smart agents and VARs will team up to create powerhouse solutions providers with rich annuity revenue streams. Both agents and VARs who refuse to cross that chasm through M&A or other partnerships, will be marginalized.”

Andrew Pryfogle, President & CEO,

Terrapin Solutions LLC

, master agency

I believe there will be more consolidation for a couple of reasons: 1.) A number of the large carriers are continuing to consolidate their agent programs, going to more of a master agent model. This will provide incentive for agents to partner with a master agent to protect their revenue, gain the best commissions and have the freedom to operate without the constraint of quotas.
2.) A trend is developing where master agents are acquiring VARs or other specialized providers to enhance their in-house expertise in the areas of consulting, managed and outsourced services (i.e., cloud) and equipment. This can be a win-win for both parties as the master agent gains the expertise they are seeking and the acquired companies gain the network sales expertise and clout with carriers they are lacking.”

Nancy Ridge, Vice President,

Telcombrokers,

master agency

The channel will see considerable consolidation over the next 15-18 months, in large part due to increased end-user adoption of cloud-based services. Many Saas providers and service providers are offering relatively low margins (or commissions) on cloud services and that puts pressure on the channel. Additionally, a significant number of VARs will not make a successful transition from their traditional on-premises sales model and installation and implementation professional services to a cloud-oriented model. In a market that says adapt, die, or sell, look for a lot of them to sell.”

Cary Tengler, Director of Services,

Amazon Consulting

, channel research firm


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