Post-TBI Acquisition, Partners Weigh the Future of AppDirect, TSDs
"I work with the assumption that no company will be what they are today three years from now," a partner said.
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Matthew Kanaskie is vice president of solutions for Marco Technologies. The Minnesota-based company is an agent partner for both companies as well as a managed print and IT services supplier for both.
Kanaskie said AppDirect’s acquisition of TBI affects Marco in a similar way to the Synnex-Tech Data and ScanSource-Intelisys deals. In both instances, Marco was partnering with both companies separately, having chosen to diversify itself.
“There is a clear undertone here. Be more diversified than you think you may need to be with your partnerships – it is fairly easy to become a partner in the TSD space and may be worth having multiple options,” Kanaskie told Channel Futures.
But Kanaskie said supplier partners and selling partners need to look at these relationships with a long-term vision that includes even more M&A. On one hand, the outpouring of private equity investment into the channel is causing partners to put their eggs in more baskets. He said the average agent of the old era tended to focus on a single TSD while transacting with a backup option, Marco had been working with more than four.
But for Kanaskie, it seems likely that that the egg baskets will ultimately come together over time.
“Inevitably they will merge, acquire and become one larger combined entity someday. I work with the assumption that no company will be what or who they are today three years from now (meaning pure organic growth versus investment growth),” he said.
Robert Devita is the CEO of Dallas-based technology advisory firm Mejeticks. He called the acquisition good for AppDirect and “pretty much no one else.”
“Rumors are that Intelisys, Avant and some others walked away from this. TBI was a more legacy TSD with an emphasis on connectivity, and more transactional business with some of the worst tool sets in the industry. It would not have brought much value to Intelisys or Avant. [TBI was] hemorrhaging people over the last six to nine months with this being the worst-kept secret in the channel,” Devita said.
He added that Mejeticks has seen the impact of TBI’s layoffs on the ground level.
“We lost three people in the Dallas Fort-Worth region, and not one person from TBI leadership picked up the phone and told us what was going on,” he said. “From a relationship perspective, they have done more harm than good over this time period. With that said, TBI was a privately held company and they have the right to sell it to anyone they want for any reason. This is a great exit for them.”
Channel Futures reported on Wednesday that TBI had already slashed about 60 jobs through two different rounds of layoffs.
“There were several good people from TBI let go prior to the acquisition, so like all partners, we’re cautiously optimistic about the future relationship and taking a bit of a wait-and-see approach,” Rise Technology Advisors’ Eric Ludwig said.
It’s difficult to ascertain what TBI’s headcount was prior to the acquisition, as AppDirect declined to name the number and many TBI employees had left of their own accord in the last year.
According to reports, the total number of TBI employees coming over to AppDirect is around 150.
Rad-Info president Peter Radizeski transacts with AppDirect as a result of it acquiring one of his TSDs.
He said he doesn’t understand the acquisition.
“As an AppSmart partner, it has been challenging to place telco orders. It seems to me that the strategy there is marketplace, and [not caring] about telco,” Radizeski told Channel Futures. “OK, so why buy TBI? Maybe they got a good deal. Maybe it gives them topline revenue. But what did they really buy?
“If it is a relationship business (and it is), that doesn’t scale. There was a big reduction in force recently – and probably more to come because ‘synergies.’ This deal was no secret and took so long that the underlying business of TBI was hurt by it. They lost people, partners and deals.”
Mark Venuto’s US Network was an early member of the AppDirect Invest program (at the time known as AppSmart Invest). The agreement gave the Ohio-based partner funding while putting it in exclusive distribution relationship with AppDirect.
And Venuto says his team made the right choice.
“I feel good that US Network made the decision to be a partner of AppDirect. We trust their technology; we trust their folks. They’re financially stable. The ease and scope of doing business with AppDirect has been nothing less than phenomenal from start to finish for us,” he said.
A theme of the agent channel’s early years is the power vendors seemed to hold over partners. The national TSD emerged in part because agents on their own lacked large enough revenue bases to justify suppliers keeping them around. Carriers snapping their fingers and shutting off partner commissions was a not-unexpected practice.
But not so any more with TSD M&A, Venuto said.
“As they continue to consolidate down, I think it gives the individual TSDs more influence with the big five suppliers and the CLECs, based off the pure revenue that’s generated from our channel,” Venuto said.
Some say national TSD consolidation is opening up the door for smaller distributors to pick up disaffected partners.
The big opportunity is for the smaller distributors that are still privately held to go after those local partners and say, “Look, you won’t get lost with us,” JS Group CEO Janet Schijns told Channel Futures.
Rad-Info president Peter Radizeski agreed, adding that the regional TSDs will need to work in tandem with the supplier community to make up that ground.
“Vendors will need to help them. After years of pushing partners to the big brokers, they now have to help the Tier 2 brokers in order to help themselves,” he said.
By all accounts, AppDirect has no plan of stopping its inorganic growth.
Crunchbase lists its total funding as $475 million. Notable investors include Caisse de dépôt et placement du Québec (CDPQ), a Canadian pension fund and self-described “long-term institutional investor.”
Although CDPQ does have a private equity arm, AppDirect chief operating officer Renee Bergeron said that side hasn’t been involved. And with that statement in mind, Bergeron said CDPQ will be staying in the game with its portfolio companies for a vastly longer time than a private equity investor would.
In a June 2021 FCC notice (PDF) granting AppDirect full transfer of control of Telegration from Denis Raue, the agency listed the entities and individuals who held 10% or more equity and voting interests in AppDirect. The listing, although it likely does not reflect the state of affairs in 2023, provides a fascinating glimpse into key AppDirect stakeholders.
Chairman and CEO Nicolas Desmarais at the time held direct 11.7% equity and 41% voting interest. Co-founder and president Daniel Saks held direct 8.2% equity and 29.4% voting interest.
Mithril LP, a venture capital wing of Peter Thiel’s Mithril Capital Management, held 10% equity interest and 3.7% voting interest. Mithril II LP, another wing of the firm (managed by Thiel’s partner Ajay Gopal Royan), held 7.4% equity interest and 2.7% voting interest.
J.P. Morgan’s PEG Digital Growth Fund II held 12.4% equity and 4.6% voting.
But perhaps most intriguing was Paul Desmarais Jr., who is the father of Nicolas Desmarais. At the time of the FCC notice, he held 15.9% in AppDirect and 5.9% voting interest. He used three different intermediate entities to collectively hold his indirect interests in AppDirect. More on the Desmarais family in the next slide.
It’s worth noting that this retroactive transfer of control pertained to 2019 Telegration deal. That was before CDPQ helped lead a $185 million funding round, so it’s almost certain that the equity breakdown looks different now.
AppDirect chairman and CEO Nicolas Desmarais (pictured), who co-founded the company with Daniel Saks in 2009, comes from a long line of Canadian/Quebec business leaders. A London Telegraph journalist compared the Desmarais family the Canadian Rockefellers or Vanderbilts.
Their business empire takes center stage at Montreal-based investment company Power Corporation of Canada. Paul Desmarais Sr. began leading the company in 1968. He amassed fortune and influence, serving as an advisor to one Canadian prime minister and holding close relationships with several others. Forbes listed his net worth at $4.5 billion at the time of his death in 2013.
He handed the company off to his sons, Paul Jr. and Andre, in the 1990s.
The Financial Post in 2017 quoted Nicolas Desmarais’ brother as saying that their father and uncle – Power Corporation’s co-CEOs – were some of AppDirect’s “greatest champions.” Paul Jr.’s equity stake in AppDirect shown in the 2021 FCC notice is evidence of that.
For an interesting read about the Power Corporation and the business legacy of the Desmarais family, check out the article on the Power Corporation’s website.
AppDirect chairman and CEO Nicolas Desmarais (pictured), who co-founded the company with Daniel Saks in 2009, comes from a long line of Canadian/Quebec business leaders. A London Telegraph journalist compared the Desmarais family the Canadian Rockefellers or Vanderbilts.
Their business empire takes center stage at Montreal-based investment company Power Corporation of Canada. Paul Desmarais Sr. began leading the company in 1968. He amassed fortune and influence, serving as an advisor to one Canadian prime minister and holding close relationships with several others. Forbes listed his net worth at $4.5 billion at the time of his death in 2013.
He handed the company off to his sons, Paul Jr. and Andre, in the 1990s.
The Financial Post in 2017 quoted Nicolas Desmarais’ brother as saying that their father and uncle – Power Corporation’s co-CEOs – were some of AppDirect’s “greatest champions.” Paul Jr.’s equity stake in AppDirect shown in the 2021 FCC notice is evidence of that.
For an interesting read about the Power Corporation and the business legacy of the Desmarais family, check out the article on the Power Corporation’s website.
For AppDirect and its deep base of investors that helped the subscription commerce platform provide the resources to make the acquisition of TBI, the quest to win the market is far from over.
AppDirect’s acquisition of TBI on Wednesday hit the wires, signaling the consolidation of yet another national technology services distributor (TSD). However, the transaction dubbed by many as “the worst kept secret in the channel” came as no surprise to most partners and suppliers.
“The rumor mill surrounding TBI was spinning for quite some time,” Rise Technology Advisors co-founder Eric Ludwig said.
Keep up with the latest channel-impacting mergers and acquisitions in our M&A roundup. |
Rise Technology Advisors’ Eric Ludwig
AppDirect acquired the Chicago-based technology distributor TBI this week with the stated goal of tapping into TBI’s expertise, processes and relationships in the telecommunications space. Executives at AppDirect hope TBI’s agent base will continue conducting business with the combined company and tap into cross-sell opportunities with the massive software marketplace.
“I don’t think anyone is surprised by this acquisition, as it seems to make sense on paper: AppDirect with its unique model coupled with the heft of a large legacy TSD like TBI,” Ludwig said. “The AppDirect portfolio does represent some unique services and partners outside the traditional suppliers, and the TBI back office certainly fits within any organization looking to balance front- and back-end resources and investments.”
An AppDirect Partner’s Perspective
US Networks’ Mark Venuto
For Mark Venuto, chief operating officer at AppDirect partner US Network, it’s business as usual. The additive area, Venuto noted, is in TBI’s telecom processes, particularly with some of the larger service providers. But otherwise, he doesn’t see any disruption.
“The resources that I currently work with today will remain intact for us,” Venuto told Channel Futures. “I’ll see no change in resources from AppDirect. And if anything else, additional resources will help facilitate our sales volume and help increase our close ratio.”
Channel Futures spoke to different partners and suppliers of AppDirect and TBI to gauge their sentiments about the acquisition. They observed the lessening number of choices partners have for TSDs. Moreover, one noted how consolidation is taking vendors out of the driver’s seat in some respect. Channel Futures also obtained an FCC filing detailing individuals equity holders in AppDirect as of 2021.
See those opinions, insights and background in the 10 images above.
Want to contact the author directly about this story? Have ideas for a follow-up article? Email James Anderson or connect with him on LinkedIn. |
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