Channel M&A Action May Slow

That's the view of Mont Phelps, president and CEO of NWN Corp. (Fast Growth No. 3), a Waltham, Mass., solution provider active in the acquisition market. On Jan. 1, NWN acquired Systems Engineering Inc., a Waltham solution provider with annual revenue of $5 million. The company specializes in application development and consulting.

"Acquisitions are usually financed through blended deals with some private equity money and some debt," Phelps said. "The market is tougher because private equity firms are more cautious and banks are becoming more restrictive."

Phelps compared the acquisition climate to the mortgage market. He said that banks are more closely scrutinizing deals and demanding more money down, which drives up the cost of deals because it ties up more of the buyer's cash.

"There's still private equity money around, but it's not as free-flowing."

While NWN has acquired all or part of more than a half-dozen solution providers in the past two years, Phelps said he's still looking for more despite the cloudy credit climate.

"The Systems Engineering deal was a relatively small transaction," he said. "But it's 100 percent services revenue, which is a little more substantial [than product revenue]."