Consolidation is the name of the game in the Channel

If you are a regular PCR reader you will no doubt have seen a lot of news over the past 18 months about mergers and acquisitions in the Channel. It’s not just that we’re covering lots of these stories, they have actually stepped up a gear according to the new Context ChannelWatch Survey.

Looking at the views, activities and intentions of a representative sample of 7,500 resellers operating across Europe and beyond, in Russia, Turkey, Australia, New Zealand, and Brazil, the survey has found that over 30 major distributor M&A deals have taken place in Western Europe in the past 18 months. 

Contributing factors to these deals have been the desire of major players to seek out the sustainability, plus scale and margin improvement offered by IoT, refurbishment, attractive services margins and cloud adoption.

In the past year alone we have seen huge mergers, such as Tech Data and Avnet, Esprinet and Vinzeo, Synnex buying the US part of Westcon, and Ingram Micro coming under Chinese ownership through the HNA acquisition. That’s without even considering the potential deal between Entatech and Beta that fell through at the 11th hour. 

And there are many more deals likely to come in the not-so-distant future. Speculation has been mounting over the possible takeover of ALSO by HNA via Ingram Micro. 

These deals are having a big effect on buying in the Channel as well. As the survey points out, the average number of distributors resellers are buying from has dropped from five-10 in the last report period to just two-three this year. This is partly driven by the rise in purchases from etailers, especially in Turkey, Brazil and Europe.

In addition, many more distributors have ceased trading altogether across the globe (like the aforementioned Entatech), while those that survive are being forced to move away from box shifting towards holistic strategies focused on services and solutions.

Where margins used to reach double figures, half a percentage point now matters and this increases the importance of controlling costs, having well-oiled logistics, and looking for new, higher-margin opportunities, the report claims. 

The report also points out consolidation in the reseller market, with a 3 per cent year-on-year reduction of active resellers across 20 EMEA countries between March and May of this year. Should this trend continue, the reseller landscape could alter significantly in the next few years, the report warns.

“Although most consolidation has occurred in the long tail of smaller players and those in consumer channels, larger resellers and retailers are merging too: ie, Dixons–Carphone Warehouse, Dominion–Phone House (Spain), and MediaMarkt buying a slice of Fnac”, said Adam Simon, Global MD at Context.

“This activity can also be viewed in the context of increasing reseller churn, especially associated with transitioning business models linked to cloud adoption.” 

Between 2016 and 2017, Context Reseller Metrics revealed the notional churn rate of resellers moved from almost three years to just over two years – a 20 per cent acceleration rate.

The Context ChannelWatch 2017 Survey also shows that reseller perceptions of vendor and distributor consolidation on their own business are divided, but overall positive. Around half of respondents worldwide thought consolidation was a positive thing whilst a third remained neutral on the subject and 15 per cent considered it a negative trend.

This chimes with Context Reseller Count Metrics tracking which finds that overall reseller revenue in the March-May 2017 period went up. It’s clear that those players which remain after consolidation are able to pick up the revenue lost by those that have been consumed.

“The main concerns of resellers are focused around rising pricing and procurement costs, which many believe will be the natural outcome of a consolidating market”, Simon added.