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BULKING UP FOR SCALE
Hope Hayes, president of Alliance Technology Group, a solution provider in Hanover, Md., is one of the VARs now on the hunt. She said she currently is looking to grow her business by acquiring viable solution providers with storage, security and professional services expertise who have "hit the wall" in terms of growth and their ability to deal with the complexities of running their businesses. "Most people who start companies are not from the operations side. They're people like myself who know the business. I didn't have a clue when I started. I just thought I could go out and sell something," Hayes said.
It was important to John Reed, COO at San Antonio-based Sigma Solutions, which in March acquired his previous company SIS Technologies. Reed said he and Sigma President Scott Gruendler mutually came to the conclusion that one Sun-centric company is better than two. "It's easier to be a $90 [million] to $100 million VAR than a $40 million VAR," he said.
James Ivy, president and CEO of Stonebridge, a VAR in Dallas, cited scale when his company sold its Sun-centric business to cross-town rival Lumenate late last month and decided to refocus on its fast-growing consulting business. "The customers we served that were predominantly Sun-centric have the opportunity to be better served with Lumenate," Ivy said. "We will continue to do business with the others as we have in the past with our consulting business."
Mont Phelps, president of NWN, a Waltham, Mass.-based Cisco solution provider that a few weeks ago saw a deal to acquire fellow Cisco partner NetTeks Technology Consultants scuttled, said his company is continuing its search to acquire Cisco-focused partners. "Scale matters," he said. "If you look at the Cisco world, they're driving part of this through their certification process. The bar is being raised, which is entirely appropriate, but if you want to be Gold- and Master-level [partners], it takes a high level of commitment."
For its part, NetTeks also had hoped to gain size from the merger, which would have created a $50 million solution provider. NetTeks, a $10 million Cisco Premier partner, would have benefited from NWN's Cisco Gold status, as well as its managed services expertise, said Ethan Simmons, partner at NetTeks. The Boston-based company now plans to go it alone and work toward Cisco Silver status on its own, possibly seeking outside funding or making an acquisition of its own somewhere down the line, he said.
While some partners whose plans fell through said they will still pursue the M&A path, others are taking a different route to become a one-stop shop. Integration Partners, a Lexington, Mass.-based solution provider with a legacy Nortel data business, sought to acquire a VoIP solution provider to jump-start its IP telephony practice, said Bart Graf, co-founder and director of the company. After the deal fell through, Integration Partners eschewed the acquisition strategy and instead cherry-picked new hires to expand its voice skills.
In addition to investing heavily in a Nortel VoIP expansion in January, Integration Partners also has added security and wireless to its mix in the past several years. The moves come as customers look to the solution provider to do more for them, Graf said. Integration Partners, which has had a compound annual growth rate of 30 percent over the past seven years, expects to double its sales over the next several years, he said.
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