ScanSource Launching Agent Subsidiary, Eying M&A Targets

CHANNEL PARTNERS CONFERENCE & EXPO — ScanSource plans to create a subsidiary company that will function as an agency alongside its tech services distributor (TSD) company, Intelisys.

ScanSource chairman and CEO Mike Baur confirmed the news in an interview with Channel Futures at the Channel Partners Conference & Expo in Las Vegas. He said ScanSource will create a customer-facing agency – dubbed "NewCo" for now – with a goal of driving more value to the supplier community Intelisys serves with its agency model.

Intelisys and NewCo will be separate subsidiaries, although NewCo will leverage Intelisys as its source for supplier contracts.

"We don't believe it should be under the distribution business. We think separating it – arm's length from the TSD – is the right approach," Baur said.

ScanSource's Mike Baur

Baur, whose company bought Intelisys eight years ago, entered into a period of re-evaluating the future of the Intelisys business six months ago, following the departure of several executives. The ScanSource C-suite in October vowed to pursue potential M&A that would advance the Intelisys business.

Baur in his interview with Channel Futures said the next generation of TSDs (formerly known as master agents) will give agents an option to sell part or all of their business. Moreover, he said, NewCo will be able to farm its customer base and land new logos more effectively than many of the large, private equity-backed agent organizations that have emerged in the last three years.

"When we all started as TSDs, our job was to recruit, educate, help grow and develop partners," Baur told Channel Futures. "There was one piece missing in that life cycle of a partner, and that was: What happens when they want to exit one day?"

Above: The Coffee with Craig and James podcast discusses the debate over ScanSource "NewCo."

The news of a potential vertical acquisition of an agency by a distributor sent shockwaves through the channel after Baur told Intelisys' top-performing sales partners late last month. Many partners say they are awaiting details of how their subagent relationship with Intelisys will change in the light of Intelisys' parent company, ScanSource, developing its own subagency.

Baur told Channel Futures that NewCo will have a management team that's separate from Intelisys. He added, however, that NewCo and Intelisys agents will need to navigate channel conflict in the future.

Read more comments from Baur and an Intelisys partner in the slideshow above.