VARs Rushed To Close Mergers Before Fiscal Cliff

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Heartland Technology Solutions and WesTel rushed to complete their merger by the end of 2012 in order to avoid potential tax implications caused by the so-called fiscal cliff, according to Arlin Sorensen, CEO of Heartland.

"The fiscal cliff, healthcare costs, tax implications. We've seen it across our customer base too. People are uncertain," Sorensen told CRN.

Meanwhile, the now-averted fiscal cliff has served as a primary driver for a number of VAR acquisitions to close in the final days of 2012, according to Sorensen, who said he knows of at least three other deals involving VARs that have been completed but not yet announced.

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"There were a number of deals happening on the 31st that I'm aware of. In our deal, it was tax driven from a timing perspective. There's definitely tax implications to not get it completed on [Dec.] 31st. You'll hear about a number of acquisitions, and they will be heavily driven by economic concerns," Sorensen said.

Before the Senate and House finally agreed on a last-minute plan for 2013, the implications were that tax rates would go up significantly until a compromise was reached between Democrats and Republicans. With that uncertainty, companies pushed to get deals done more quickly, Sorensen believes.

"There's a real impact to deals closing when the tax rates could potentially go up significantly," he said.

Meanwhile, Sorensen also expects further consolidation to continue in the VAR industry throughout 2013 as more and more business owners -- particularly longtime business owners -- look to get out of the channel.

"The consolidation will accelerate. The economy will be rough for the next few years. There's a lot of VARs struggling from an economic perspective. I think you'll see a ton of consolidation occur," Sorensen said. "There are a lot of people my age or older running companies looking for a way to slow down a little bit. There will be a considerable amount of [deals] this year."

In addition to running HTS, Sorensen also heads Heartland Tech Groups, an organization of about 300 VARs that share best practices -- and their financials -- in order to glean ideas to improve their own companies.

With that insight, Sorensen said he expects consolidation to occur between the traditional IT VAR channel and the copier and telco space.

"Other industries will be collapsing into the IT space. They learn that it's more effective to buy than to build your way [into the IT channel]. You'll see more and more of that. Telephone companies [and copier dealers] have mastered the recurring revenue thing far before we did it in the IT space. They have solid revenue and predictable income. You'll see more acquisitions," Sorensen said.

Also Wednesday, Tampa-area Solution Provider 500 companies Vology and Bayshore Technologies said they were merging to create a "hybrid super VAR" expected to hit more than $140 million in 2013 revenue. The deal closed Dec. 28, but neither company cited tax implications as a factor for the deal closing before the end of the year.


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