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Solution providers say the current sizzling private equity market will lead to more than a few bad deals. Think about it. Many VARs are enamored with being the object of financial affection, and private equity players with cash to spare are hot to make deals. But just because you can do a deal doesn't mean you should. "These private equity guys get paid by doing deals," says Ron Dupler, CEO of GreenPages, a Kittery, Maine, solution provider ranked No. 246 on the VARBusiness 500 list. "Right now, there is money on the sidelines that they need to invest to drive forward. When you get those calls and you are making the decision, it all comes down to investor goals. At the end of the day, it's all about what your objectives are. I don't think there is any magic formula. It comes down to the financial metrics each company has and what the game plan is over the next two or three years."
Dupler, who receives two or three calls a quarter, says he and Greenpages investors are happy and not looking for a private equity infusion. "We have the financial wherewithal to drive this company forward," he says. "We're not looking to monetize it, and we are very bullish on the industry as a whole and our company in particular."
Private Equity Ups Their Game
Jim Simpson, president and CEO of MSI Systems Integrators, a $330 million IT solution company ranked No. 143 on the VARBusiness 500 list, says he is looking at the private equity equation more closely than ever given all the recent activity. What's changed over the past year is the size and quality of the firms looking to invest in well-respected solution providers, he says.
Simpson, who heads what is considered one of the most respected IBM-centric regional solution providers in the country, says he is getting about one call, e-mail or letter a week vs. the two or three a month he was receiving two years ago. What's more, those calls two years ago were usually from smaller private equity companies fishing for owners looking for an exit strategy. Now, the players are larger, higher-quality companies coming to the table with deep industry knowledge and are looking to keep management in place to take a larger chunk of market share with higher returns. "The game has been raised," Simpson says.
"We have been on an organic self-funding path," he says. "So we have largely ignored the [private equity] shots over the bow over the last few years. But clearly we are paying attention now. My shareholders and employees would be looking at me funny if I wasn't looking out for them with everything going on in the industry now."