The Surge in M&A Activity — What Does It Mean for the Channel?
M&A in the channel: Who’s at it, what’s causing it, and what does all the PE investment mean for partners?
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“Doing your pre-merger due diligence is essential, but we have learned, at times the hard way, that this due diligence shouldn’t just be from a financial standpoint. Getting a full understanding of the way the incoming organization functions from a process, policies and a personal, human component (or ‘HR factor,’ as we’ve come to call it), is key. As the company doing the acquisition, you want to take your time in getting to know the organization you’ve acquired and fully understand the way that they were doing things, presumably successfully, before you came into the picture. Remember that if they were profitable before you merge, they should remain profitable afterward, so you do have some time on your side to cement the courtship before bringing things under one roof. You need to take your time with that HR factor in an acquisition, but not from a branding perspective. We once learned in an early acquisition, and learned the hard way, that corporate communication, both internal and external, needs to have a set ‘go-live’ date and plan in place well before the transaction. On that date, you need to have all your ducks in a row so that your two teams coming together as one know exactly what they need to about the company as a whole, its vision, and how the brand is going to go to market in the future. If you let both brands co-exist separately, it will only make ripping the Band-Aid off later more difficult, more time-consuming and more costly as the departing brand becomes more and more embedded.” —Aaron Bradley, VP of marketing, CareWorxShutterstock
Mike Kiersey is director, global technology, EMEA at Boomi. He agrees that after a period of quiet, enforced by widespread economic disruption and uncertainty, M&A activity is on the rise.
“Many solution providers will be turning to private equity to keep their business afloat, whilst others will be buying to complement and expand their tech stack,” he said.
Kiersey says this is especially true with the continued rise of cloud-based solutions needed for the new normal.
“For some, disruption will be an opportunity to tap into the market in a way that they have been previously incapable,” he said.
He points out that the challenges involved in M&A across the channel are many. Planning will be key.
“The need for business to merge at speed is essential as competitors will send out mixed messages via social channels,”he said. “[They will focus] on the internal disruption, lack of clear strategy, it will be a while before you see harmonised products and road maps, etc. This doesn’t need to be case. Successful planning to deliver M&A from day zero to day 100 is critical in aligning the new business.
“The ingestion of people, technology, processes, culture and most importantly ‘business data’ being both the opportunity and the challenge. This is all possible at speed and lower risk, enabling businesses to truly see the value of a new-co or a merger,” he added.
David Weeks is senior director partner experience at N-able. He believes that all the recent investment in the channel shows how much potential and the growth this market has. Additionally, the MSP recurring revenue model makes it a safe bet for private equity.
“Many MSPs are growing organically,” he said. “M&A makes it possible to build on this by expanding their market, including expanding into new geographies.
“Many see right now as a ‘golden era’ for MSPs. The market is consolidating and maturing, and MSPs are taking the opportunity to drive efficiency, and grow their profits alongside revenues. Altogether this makes for an appealing investment opportunity,” he said.
Christina Walker, global director channel, Blancco, says there’s a real need for channel partners to start putting their money where their mouth is.
How do they do this?
“By complementing their businesses through mergers that allow them to scale their services,” she said. “The old resell margin is dead so there is significant need for partners to invest in verticalized solutions.”
“Acquire or be acquired” – so says Kirk Horton, VP, channels & partners at security company Netacea.
“Consolidation must occur,” he said. “The only way for the large former master agencies (now technology solution brokerages) to grow is by attracting agents and their respective clients.
Horton notes there is much competition for the agent’s mindshare, which gets spread across all the competing larger TSBs.
“There’s a lot a parity across those organizations,” he said. “At the end of the day, the TSBs can provide tools, service diversity and incentives to capture their attention, but if they really want their complete buy-in, acquire them. You grow your top line and you weaken your competition.
“The PE firms and investors see the opportunity for market growth and valuation growth, so they’re making investments in the TSBs and providing them with ‘war chests’ to go out and acquire the best players in the market. This strengthens the TSB’s portfolio and adds expertise and more importantly those unique relationships. For vendors, this consolidation makes it easier to form meaningful partnerships and limits the agreements they have to sign.”
Fernanda Catarino is head of channel, alliances and ecosystem Europe, product business at Fujitsu.
She says a challenge common to all industries is the fact that the technology infrastructure that supports each business is growing increasing complex. This is particularly true as companies seek to grow by expanding their channels, improving efficiency or driving new levels of innovation.
“The depth and breadth of skills involved today mean that no one can do this alone,” said Catarino. “There are many drivers for M&A, but ultimately it all comes down to acquiring skills, people and capabilities.
“We are seeing large deals in M&As in the distribution landscape where the industry is led by a small group of global giants. The deals are about gaining scale and power. In Europe in particular, we are also seeing smaller solution providers seeking mergers and acquisitions to support their complex IT needs.”
Victor Baez is SVP of global cloud channel sales at Ingram Micro Cloud.
“Envision all the venture capital money that’s flowed into MSPs since the pandemic started. Then consider the moves hyperscalers like Microsoft, Google, Alibaba, AWS and so forth are making. It only makes sense that the next step would be for the limited partners of VC funds to want to see a consolidation of their investments in order to remain competitive,” he said.
“After all, there’s only so much market share, and competing against Jeff Bezos isn’t easy,” he added.
Victor Baez is SVP of global cloud channel sales at Ingram Micro Cloud.
“Envision all the venture capital money that’s flowed into MSPs since the pandemic started. Then consider the moves hyperscalers like Microsoft, Google, Alibaba, AWS and so forth are making. It only makes sense that the next step would be for the limited partners of VC funds to want to see a consolidation of their investments in order to remain competitive,” he said.
“After all, there’s only so much market share, and competing against Jeff Bezos isn’t easy,” he added.
We’re witnessing a record volume of tech M&A activity throughout the world, but particularly in EMEA. Fuelled by a tidal wave of private equity (PE) money, it’s a trend likely to continue.
In 2021, more than a third of all technology exits in Europe were private equity-funded investors rather than corporate acquirers. According to tech-focused investment bank ICON Corporate Finance, that’s an increase of 38% on 2020, and almost three times as much as in 2015.
Recent examples in Europe include TA Associates’ $2 billion-plus acquisition of the Dutch enterprise software firm Unit4 NV, as well as the majority buy-out of Irish Fintech unicorn Fenergo by PE funds Bridgepoint and Astorg.
Growth capital and buy-out firms have never faced more competition as significant numbers of funds actively seek tech opportunities in Europe, creating a sellers’ market for high-quality businesses. Indeed, two-thirds of UK CEOs plan to accelerate M&A in 2022.
In the slideshow above, tech leaders share their thoughts on what’s behind the M&A activity, and how partners can capitalize on the trend.
Want to contact the author directly about this story? Have ideas for a follow-up article? Email Christine Horton or connect with her on LinkedIn. |
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