ScanSource-Intelisys Deal Could Kickstart More Master Agent-Distributor Partnerships

ScanSource's acquisition of Intelisys could ignite more unions of IT distributors that have historically focused on hardware and software and master agents with thriving telecom and cloud practices, master agent executives say.

The channel knows that with IT consumption models changing, there could be more consolidation as distributors strive to remain relevant in a world in which recurring revenue is king, and partners look to become full-fledged solution providers in their clients' eyes.

On Monday, ScanSource announced it would acquire Petaluma, Calif.-based Intelisys for $83.6 million plus earn-outs. The deal, expected to close by Sept. 30, marks the first time an IT distributor has purchased a master agency.

[Related: Intelisys On Being Acquired By ScanSource: ’We’re Going To Need A Bigger Boat’]

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"I'm surprised it's taken so long for the VAR and IT community to validate what we [master agents] have been evangelizing for the last five years -- the value of the recurring revenue model and the impact it has not only on your cash flow long term, but your business valuation,’ said Ted Schuman, CEO of PlanetOne Communications, a master agent based in Scottsdale, Ariz.

Vince Bradley, CEO for World Telecom Group (WTG) agreed, saying that the historical lines of demarcation between master agents and distributors are fading.

"Now that the [ScanSource-Intelisys deal] has happened, other equipment and software distributors will take a closer look at the space," Bradley said. "I expect the trend will continue."

Many master agents -- including WTG and Intelisys -- have had relationships with equipment and software distributors for years.

Bradley said master agents have been educating distributors on how to "stop leaving money on the table." As a result, many distributors have begun sourcing additional solutions from master agents for their clients, as evidenced by the ScanSource-Intelisys deal.

Unlike distributors that carry hardware inventory and are tied to accounts receivable, master agents partner with telecom, cable and cloud providers. The master agents have carved out their own niche in the channel by making money through commissions off the telecom services, connectivity, and cloud offerings their agent partners are selling.

While margins on telecom and cloud services can be very lucrative over time, it’s different from the model many distributors have been accustomed to for years: upfront capital coming from an equipment sale. However, distributors are being forced to evolve because their business clients are opting to buy IT products and services in new ways, including the subscription-based model, PlanetOne’s Schuman said.

’It’s not a get-rich-quick model, but the cash flow that these services offer on a recurring model is significant to a bottom line, and frankly, that’s all anyone cares about,’ he said. ’[ScanSource] obviously gets that, or it wouldn’t have bought [Intelisys].’

Along with the distributors, many VARs are looking to become full-fledged solution providers that can serve all their clients' IT needs. These partners are eyeing telecom and cloud services as a way to round out their portfolios, WTG’s Bradley said.

"We are seeing more and more adoption of telecom and cloud services as needed by solution providers," he said. "This trend will definitely continue."

Convergence in the channel is also becoming evident as more master agents strive to become Microsoft shops, Bradley said. Both WTG and Intelisys were chosen by Microsoft to join its Cloud Solution Provider (CSP) Program last fall. For WTG, that move created a new revenue stream for its companies' solution providers and agent partners, Bradley said.

Meanwhile, New York City-based solution provider BCM One announced this month it would acquire Microsoft Gold partner CloudStrategies Group for an undisclosed amount to build up its own Microsoft cloud expertise.

There is also consolidation within the master agent community itself. Earlier this month, Hermosa Beach, Calif.-based Sandler Partners announced it would acquire X4, a fellow master agent based in Romeoville, Ill., for an undisclosed amount.