Private Equity Matters

The biggest story in the channel in this decade is the huge infusion of private equity that is reshaping the channel landscape.

That private equity represents the biggest infusion of cash into this business since the dawn of the solution provider marketplace in the early '80s. The impact that cash will have will be felt in every nook and cranny of the channel ecosystem—from small independent VARs with less than $1 million in sales to the biggest of the services behemoths like IBM Global Services.

STEVE BURKE Can be reached via e-mail at sburke@cmp.com.

If you are playing in the solution provider marketplace and are not adjusting your business for the private equity aftershocks, then there is a good chance you could find yourself in financial ruin.

First off, the private equity infusion means VARs competing in every segment of the market will feel more pressure. Private equity rollups—a lot of them under the radar—are taking hold at a breakneck pace. Whether you are small or big, that private equity money means more economies of scale and more efficient management will start to be felt in the prices your customers pay for high-quality professional or managed services. These private equity players are the 21st century masters of the universe. Delivering less with more to customers and getting a bigger earnings payout is a science they have excelled in across many industries.

What all this means is that each and every solution provider must decide how it should fine-tune its business to deliver more value to clients. It's impossible to be all things to all people. The days of the horizontal VAR are over. It's not a sound strategy. If that's your play and you're not growing your business at a 30 percent clip, then you are at risk. Sales growth can be an effective countermeasure because economies of scale matter. That's why VARs have to decide how and where they play.

The players that will feel the impact first are out-of-shape behemoths such as IGS and Electronic Data Systems. But make no mistake about it, midrange and small independent VARs that do not make dramatic business adjustments will also be hit hard. Finally, vendors that have been betting on a narrow group of VARs will find themselves with fewer feet on the street. The private equity Kryptonite meteor is hurtling toward planet solution provider, and not even Superman is going to be able to save the day.

Are you ready for the private equity meteor?
Send your thoughts to sburke@cmp.com.