Search
Homepage This page's url is: -crn- Rankings and Research Companies Channelcast Marketing Matters CRNtv Events WOTC Jobs HPE Discover 2019 News Cisco Wi-Fi 6 Newsroom Dell Technologies Newsroom Hitachi Vantara Newsroom HP Reinvent Newsroom Lenovo Newsroom Nutanix Newsroom Cisco Live Newsroom HPE Zone Tech Provider Zone

VAR500 2011: Rise And Fall

There are 215 new companies on the VAR500 list this year, the most turnover the annual ranking has seen yet.

But the tumultuous change shouldn’t come as a surprise. With the economy still unsteady and the proliferation of cloud computing and new services models, many VARs are undergoing the biggest transformations in the history of their businesses. In some cases, it’s causing VARs to close up shop, while in others, a rise in M&A activity has consolidated the number of VARs as companies seek to expand their footprints to achieve greater efficiencies of scale.

MindShift Technologies will cross the $100 million mark this year after making nine acquisitions, including Alpheon in January, in the seven years CEO Paul Chisholm has led the Waltham, Mass., MSP.

photo
2011 VAR500 Home

“We’ve been in an economic turmoil for three years now and that’s changed a lot of things. Consolidation in general is needed to scale the business to drive even more business today,” Chisholm said.

In addition, as VARs -- and end users -- migrate to cloud- and SaaS-based solutions, VARs and MSPs need more capital to scale the infrastructure to support those solutions, he said.

“You can’t get to the next level of where you want to go [without capital],” Chisholm said.

End users also want to know their IT outsourcing partner will be around for the long term. Larger VARs that can more effectively leverage their scale will have an advantage, he said.

“It’s not [getting] big for the sake of being big, but for the sake of being financially secure,” he said.

Increasingly, larger VARs are looking to expand while keeping a local presence, as Technology Integration Group, San Diego, recently did through two acquisitions. TIG President and CEO Bruce Geier said scale matters for VARs for two primary reasons.

The first reason is that cash is usually very tight for smaller entities. “They don’t have clout,” Geier said. “Lenders don’t feel as safe working with them as they do with larger companies.”

The second reason is it helps VARs weather the changing technology winds. When VARs, many or most of which came from a hardware focus, grow or merge or make acquisitions, they leave space in the market for companies to grow in new areas such as cloud computing.

“Recessions are always times for consolidation, a shrinking period for the number of businesses,” said Geier. “And as they shrink, that means opportunities for new guys to come in.”

Some companies, however don’t come in -- they go out. Packet 360, Herndon, Va., filed for Chapter 7 bankruptcy and closed its doors in late May without offering an explanation to employees or customers. The VAR was forced into liquidation when it was unable to get financing to continue operating, an attorney for the company told the Richmond Times Dispatch in early June. In a filing with the U.S. Bankruptcy Court in Richmond, Packet 360 listed 23 creditors with liabilities between $1 million and $10 million, according to the newspaper.

All the turmoil in the channel is no surprise to Martin Wolf, founder and president of San Ramon, Calif.-based Martin Wolf Securities, a firm that specializes in channel M&A. In fact, it may just be beginning, Wolf said.

“If you have 215 new names on the VAR500 this year, next year you’ll be pretty close to that again in terms of dramatic change. There’s a lot of activity,” Wolf said.

Much of the turmoil in the VAR base -- including the maelstrom to come -- is being driven by tier-one vendors looking to consolidate their channels, Wolf said.

“Look at people in the HP space, the Cisco space, the Microsoft space. Do you see these guys talking growth? For a lot of companies, growth is being juiced by emerging markets. If HP says it’s going to grow single digits, that means the U.S. will be lower because other markets are growing faster. That’s a problem.”

Wolf believes vendors have too many smaller partners to be economically efficient and that the industry’s bellwethers will become tighter with their largest partners at the expense of the little guys.

“If you’re not doing $30 [million] or $40 million with a normal mix of hardware, software, services, the cost of poker is too high [for VARs],” Wolf said.

JOSEPH F. KOVAR contributed to this story.

Back to Top

Video

 

sponsored resources