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JUMPING INTO MANAGED SERVICES
One of the hottest market segments for channel acquisitions is managed services, which is creating huge opportunities to cash out as vendors and solution providers push to acquire managed service providers while MSPs look to acquire solution providers, especially those with small-business expertise.
The southeastern United States has dozens of solution providers whose owners are nearing retirement, along with small telecommunications agents lacking the ability to converge their services with IP-based networking, said Perry Swaim, president of Voyss Solutions, a Charlotte, N.C.-based MSP looking to acquire several such firms. Size equals strength in the managed services market, Swaim said. His goal is to grow Voyss large enough to attempt an IPO in the next few years, but if that doesn't happen, the vast multistate managed services operation Voyss is on course to becoming will be a secure, highly profitable business, he said.
Instead of tackling the expensive proposition of buying several smaller solution providers outright, Voyss uses what Swaim called an "asset rollup process" to gradually buy out the owner in a way similar to a reverse home mortgage. "We don't give [a VAR's owner] the opportunity to opt out right away," he said. "What we do is give them lineage: We keep the company going and payrolls paid as we build an umbrella company we hope to at some point fund or take public, and at that time, they would cash out," he said.
Lan-Com Technologies, a systems integrator in Hickory, N.C., recently completed this process with Voyss, said Ramsey Dellinger, president of Lan-Com. The gradual buyout gave Dellinger the freedom to concentrate on a new venture that orchestrates financing for MSPs looking to add hardware as a service—MSP On Demand, he said.
Even vendors are bulking up to increase their solutions muscle in their ever-growing services businesses. Often, that means competition for solution providers. This year, for instance, EMC acquired two Microsoft-centric VARs, Interlink and Internosis, to bring their Microsoft services experience to its other channel partners. Microsoft in April acquired ProClarity, a developer of analytical tools based on Microsoft's business intelligence platform. Xerox, Canon and Toshiba all purchased one or more of their dealers this year as well.
In such acquisitions, the partners normally benefit because the vendor may be willing to pay an inflated price for the company to get services capabilities fast, said a channel source who requested anonymity.
Going forward, solution providers expect the acquisition push to continue. In a mature industry like IT, there are always shakeouts of companies that cannot otherwise survive, said Tom Croce, president of Phoenix Computer Associates, Fairfield, Conn., which last month was acquired by investment firm Clarey Technology Group, Irvine, Calif. "Mergers and acquisitions sometimes are necessary to remain competitive," he said.
In the end, the fact that many solution providers today are more likely to be negotiating the sale of their organizations on more favorable terms than they might have a few years ago does not mean they are quick to let go. "It's a little scary," said Sigma's Reed. "It's like selling off one of your kids."
DAN NEEL, STEVEN BURKE, KRISTEN KENEDY, PAULA ROONEY, JENNIFER HAGENDORF FOLLETT & STACY COWLEY contributed to this story.