Page 1 of 3
They're watching you. Other solution providers are looking to snatch up your hot technical talent and rich customer base. They want the skills you have developed to build increasingly complex solutions and become the one-stop shop for their clients.
And they are willing to pay you a premium.
table and, in most cases, are remaining with the new company. The buyers say they need the scale and hard-to-get talent to continue to grow their businesses.
Unlike the chaotic, cash-squeezed solution provider sellouts of a few years ago in the wake of the dot-com crash, today's deals are all about increasing solutions muscle and reach in an age in which customers are looking to the channel to do it all—from high-level consulting to solutions development to procurement to services. Even vendors and ISVs are snatching up solution providers to fuel their own services sales growth. Call it the channel on steroids. There have been dozens of deals completed this year, and industry executives see no end in sight as VARs bulk up. In the past couple weeks alone, one of Sage Software's top solution providers, New York-based Net@Work, acquired another strong Sage VAR, Eagle Consulting Group, while Norcross, Ga.-based IBM VAR Optimus Solutions acquired another major IBM VAR, Paaridian Technologies.
For its part, Net@Work is looking at acquiring two more companies over the next several months in order to build up its solutions reach, said Alex Solomon, co-founder and co-president of Net@Work, which expects to grow its sales to $14 million this year, up from $11 million last year. Solomon said the merger frenzy is the result of customers demanding end-to-end solutions from applications to infrastructure from solution providers. He said clients are sick of finger-pointing between hardware and software companies and multiple partners. "Customers don't want to go to two or three different companies," he said. "They want to go to one company that has total accountability for the whole solution. That is our value proposition. It makes sense. The total cost of ownership is reduced when one company is accountable," Solomon said.
Eagle President Debra Ellis, who will serve as manager of consulting services at Net@Work, said the industry is a lot different today than when she founded Eagle 12 years ago. "There [are] a lot more skill sets you need on board in order to provide the best service," she said. "The technology is more advanced. You can do so much more with the technology, but you need to know how to do it." The deal brings Eagle's customers access to an infrastructure practice, a CRM business, a document management practice and even a networked copier group, she said.
Michael Healey, former president of $10 million VAR TenCorp., which was scooped up by solution provider GreenPages earlier this year, said the M&A mania is all about VARs getting the scale to reach new solution heights. Combined, GreenPages-TenCorp. expects to grow sales 30 percent this year to $100 million. Even more impressive, GreenPages' solutions sales now account for 40 percent of sales, up from only 12 percent a year ago, he said.
"The bulk of the market isn't buying the way they used to," said Healey, now CTO at GreenPages. "Now, businesses are looking to solution providers to just do it all. And to do it all, you need scale and scope."
At the same time, the skills required to do customer support, networking and integration keep going up exponentially, he said. "The level of specialization is pushing you to be bigger." At the end of the day, it's all about being the "one throat to choke" for the customer, he added. "But there is a benefit to being the one throat because you are that customer's advisor."
Healey said the challenge for companies looking at making a deal is choosing the right partner. "To find the right partner that can take what you built, integrate it and keep the customers is a tough challenge."
One ex-solution provider who went through a couple of acquisitions after the dot-com collapse said the primary difference at that time was that a lot of firms were undercapitalized and forced to sell. "Today, companies are selling with a bit of a premium, so things are different," he said.
Part of that premium comes from the fact that much of the new crop of solution providers being acquired are stable, viable businesses that are finding it difficult to grow. That's because there's a major capital investment necessary to provide ever-complex solutions for customers looking for a single outsourced IT provider.
