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Partners Wary of Direct Sales Conflict After Tech Data Buys Solution Provider

Tech Data's foray into direct sales through its acquisition Tuesday of solution provider Signature Technology Group (STG) sparked an immediate backlash from several of the distributor's channel partners.

Tech Data's foray into direct sales through its acquisition Wednesday of solution provider Signature Technology Group (STG) sparked an immediate backlash from several of the distributor's channel partners.

Solution providers said they were concerned that Tech Data's purchase of Phoenix-based STG poses a conflict of interest as the Clearwater, Fla.-based distributor now has the internal capacity to sell data center services directly to end users without engaging a solution provider partner.

Ashok Thakur, president and CEO of Computer Consultants Network Inc., a Hicksville, N.Y.-based partner of Tech Data since 1993, says he is concerned Tech Data could now use his clients' information to sell direct.

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"I never thought they would do something like this," Thakur told CRN. "Now they can take all the information regarding our clients and use it against us and use it to enhance their business. It's definitely a big negative."

Signature Technologies provides data center services to commercial and public sector customers, small firms, Fortune 100 companies, educational institutions and both local and federal government agencies.

The transaction is expected to close in early June, with STG continuing to be led by current CEO Charles Layne and operating as a stand-alone unit within Tech Data's Advanced Infrastructure Services (AIS) division. The purchase price was not disclosed.

Chuck Bartlett, Tech Data's senior vice president of AIS, tried to allay channel partner fears during a call with CRN Wednesday. He said STG has been focused for the past four years on growing its solution provider business and now does the majority of its business outsourcing services through other channel partners, though he declined to give an exact percentage.

"We've got a lot of requests from partners constantly to do one-off things for them where they don't have the capacity or don't have a vocation in a particular area," Bartlett said. "Hopefully our customers will understand how this [STG acquisition] is being put into the market."

Existing Signature Technology clients will be free to decide whether they wish to continue working directly with the STG sales team or whether they wish to engage a Tech Data channel partner, Bartlett said.

"We're not going to dictate or indicate to our customers how they should procure their services," Bartlett said.


All of STG's 125 employees -- including its direct sales team -- will remain in their current roles once the company becomes a standalone unit within Tech Data. Bartlett said that as far as he is aware, this is the first time Tech Data has ever had a portion of its business that directly touches end users.

And that's a concern to the CEO of one enterprise partner that does business with Tech Data. This CEO sees the STG deal as a sign of competition in the cloud era as onetime-close partners take up arms against one another in pursuit of services sales growth.

"Everyone is trying to grow and capture a bigger piece of the pie, and what they are ending up doing is encroaching on the business of their partners," he said.

A different channel partner -- this one based in STG's home state of Arizona -- had concerns about the acquisition.

"[This deal] could jeopardize [Tech Data’s] relationship with partners such as myself," the solution provider said.

Despite concerns expressed by some channel partners, Bartlett said Tech Data's investment in STG going forward will be focused entirely on its channel business and not its direct sales team. Partner-led deals will eventually be a "very, very high" percentage of STG's total business, though Bartlett again declined to provide an exact figure.

"We're cognizant of that fact that we have partners that have these services," Bartlett told CRN. "[But] at the end of the day, we have partners, we have vendors, we have people asking us to augment their capabilities, and we felt it was important to provide that service."

Specifically, Bartlett said the STG purchase was needed to stop Tech Data's channel partners from purchasing services from a competing distributor or other third party. Adding STG should allow Tech Data's solution providers to boost profits and deepen their relationships with existing customers, Bartlett said.

Rory Sanchez, the CEO and president of SL Powers, a West Palm Beach, Fla., solution provider that works with Tech Data, applauded the acquisition as a bid to help solution providers without data center expertise move into that market.

"Good for Tech Data," said Sanchez. "They are always slow to move and slow to do something. … I am sure Tech Data has reseller customers that are inadvertently being pulled into the data center space, but don't have the expertise or resources to deliver."


Sanchez said he would even consider using the STG services as part of his business. "What Tech Data is doing is acquiring the company and their delivery mechanism and making it available to the channel," he said.

Bartlett said he is unsure of the company size or vertical focus of the customers STG engages with directly, as well as the extent to which its client base overlaps with those already serviced by Tech Data. However, Bartlett added, much of STG's work focused on the portion of the customer base that Tech Data's larger channel partners wouldn't even touch.

STG already has experience working with large, multibillion-dollar solution providers, Bartlett said. He also emphasized that STG provides only services, and therefore in no way competes against VARs focused primarily on reselling products.

"We're a partner-led company, and we're going to continue to be partner-led," Bartlett said.

Rich Fly, director of government programs at Arizona-based iT1, has different concerns about the acquisition. Fly said he's worried that the services STG will add to the portfolio will drive up the prices of other Tech Data products and cut back on the distributor’s price advantage.

iT1 already provides managed services to its enterprise customers, Fly said, and chooses to buy products from Tech Data rather than competing distributors like Avnet, because Tech Data has consistently kept prices low.

"We already have that engineering bench," Fly said. "My only concern is that the services STG will offer will drive prices up."

Bartlett said Tech Data will continue to look at the market for opportunities to expand its capabilities, but isn't sure if that will lead to another solution provider acquisition. For now, Tech Data's priority is a complete and effective integration of STG, Bartlett said.

STG appeared in CRN's Fast Growth 150 list in 2013 and Fast Growth 100 in 2012. The company has made a handful of acquisitions in the past six months, including the U.S. Consulting Division and Customer Support Services division of GlassHouse Technologies, a Southborough, Mass.-based MSP; and the recruiting division of Global Resources, a Northbrook, Ill.-based business development group.

PUBLISHED MAY 27, 2015

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