The great distie stack up

Will the lack of competition in the Channel will damage the industry?
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Stacking Dolls

Big money deals have been one of the fundamental cornerstones of the rapidly expanding tech market. With companies domestically and internationally getting bigger and bigger we have seen, in the past 18 months alone, the likes of ARM and Corsair bought up by venture capital groups. Further afield, being acquired by a major tech firm with eyes on a monopoly is part-and-parcel of being a successful tech start-up these days. Look no further than Nest and WhatsApp to see start-ups that have now become household names in part thanks to being gobbled up by the Silicon Valley giants.

When it comes to vendors it’s easy for us in the Channel to often put up a metaphorical barrier. Corsair may have been bought for in excess of half a billion dollars by EagleTree Capital, but it’s still making the same systems, components and peripherals it was before the deal; so as far as retailers, resellers and distributors are concerned their business dealings haven’t changed.

But over the past year and a half, major mergers and acquisitions are hitting closer to home and having more of an effect. Over that time frame, we have seen more than 30 major M&A deals take place across Western Europe, according to Context’s ChannelWatch Survey. These deals, such as mergers between Tech Data and Avnet, Esprinet and Vinzeo, and Ingram Micro coming under Chinese ownership through the HNA acquisition, have also had a drastic effect on the supply chain itself. Within the time period, the average number of distributors that resellers are buying from has dropped from five-ten in the last report period to just two-three this year.

But rather than this being indicative of a flailing economy, these trends will ‘most likely continue as a consequence of the Channel’s evolution, rather than as a cause’, says Exertis business intelligence manager Jonathan Wagstaff.

“Increasing margin-pressure on traditional broadline distribution has meant that high-performing specialist and value-added players are an attractive option to distributors looking to speed up the transition to a hybrid model. This model combines broadline, value, and specialist distribution, with a focus on business outcomes, where specialist offerings are maintained and not diluted.”

This is a sentiment also carried by Brigantia Partners commercial director Iain Shaw. “Over the next five years I think there is likely to be a further spate of smaller acquisitions as the broadline and larger distributors look for niche VADs that specialise in recurring revenue managed services,” he notes. “These acquisitions will bring with them a wealth of talented individuals with experience in this area of the market place.”

With specialist disties becoming an ever-increasingly attractive prospect to broadlines, security is set to be where they are looking. “The small to medium sized security VADs are likely to be top of the agenda,” continues Shaw. “I would expect to see some high prices paid for the best of these that have growing books of business, interesting new specialist vendors and a team that have information security experience and are knowledgeable about not only what GDPR is but the processes that are required to help their partners and their partners’ business customers become and remain compliant.”

Exertis sent shockwaves through the Channel when it acquired Hammer for close to £40 million in October 2016

Exertis sent shockwaves through the Channel when it acquired Hammer for close to £40 million in October 2016

Certainly the appeal of knowledge and expertise is reflected from inside a major distributor, with Wagstaff commenting that Exertis’ acquisition of Hammer has provided it with ‘world-class, enhanced capabilities in technical expertise, configuration, sales support, and more’.

A big factor at play is time limitations. While a lot of distributors would like to nurture specialist expertise from within, ‘for many, it’s the only route to scale’ asserts Martin Kay of law firm Blake Morgan. “Organic growth, sourcing new routes to market and establishing new distribution networks is just too slow, too expensive and risk of failure too high. For the company it fuels survival and growth when funding lines become increasingly harder to access. For investors, whose patience may be nearing exhaustion, it can open possibilities for acceptable returns within acceptable timeframes.”

But has the siphoning down of distributors had a negative effect on the retailers and resellers who are facing end-users and clients?

Not quite, reckons Phil Griffiths, owner of PCR Award-winning independent retailer Chips Computers. “I would personally like to buy all my items from one distributor, so it saves on time and shipping costs.” But it’s not all rosy, he adds. “This can have negatives. If that one distributor has no one to compete against they are not going to offer their customers the best prices/ deals.”

But these are skepticisms and precautions that are at the root of multiple laws that have stopped, and will continue to stop, monopolies across all industries, not just in tech. Competition is fundamental to tech buying, from consumers looking for bargains to offices considering the bottom line and resellers who want to provide value to their customers while turning a profit.

“My advice to the big boys that consider such acquisitions will be to keep the teams together that have built these businesses,” concludes Shaw. “Incentivise them well and then give them access to the wider historical customer bases and relationships. Selling tin is not like selling recurring revenue services and the mistake to be avoided is thinking that traditional sales teams will understand the processes involved and the time investment needed.”

Competition and expertise are why the Channel – as broad as it is – is able to come under one roof. While mergers and acquisitions will continue, the niche specialities that are brought about by the Channel’s vastness must not be understated. Uniformity is no good for business. 

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