As Tech Data announced yesterday that it is to be snapped up for a cool $5.4bn by private equity (PE) firm Apollo Global Management, the channel is once again asking itself what another PE deal means for traditional players and practices.
With only a couple of weeks between this deal and the ConnectWise-Continuum acquisition announcement, and nine short months since Thoma Bravo snapped up ConnectWise in a shock deal, the growing reach of PE money into the channel is becoming ever more encompassing.
It, of course, begs the question of what partners think about this and how it will impact them and their business. While a large cash injection may sound appealing, it doesn't come without consequences and potentially massive impact on VAR and MSP businesses alike.
Partners have certainly expressed surprise at the size of the acquisition. Michael Goldstein, president and CEO at Fort Lauderdale, FL MSP LAN Infotech and an Ingram Micro partner, told CPI he was "very surprised at the size of this purchase".
This was echoed by Tech Data partner i3 Business Solutions, whose president and partner Mike Ritsema told CPI that he too was surprised by the scale of the transaction, but can see there is clear appeal for PE firms.
"The Tech Data deal affirms the attractiveness of the technology industry," he said. "While the cloud is looming with potentially dooming impact on MSPs, Thoma Bravo and Apollo clearly see the nearly exponential possibilities of the technology industry."
But what are partners actually expecting to feel as an impact of the purchase?
Tyler Lawrence, VP of sales at Bellingham, WA-based VAR Sierra Microproducts, which partners with various distributors, including Tech Data, suspects that given Apollo's limited technology portfolio, there aren't any obvious synergies to leverage with the Tech Data acquisition, unlike Thoma Bravo and the obvious tie-up between ConnectWise and Continuum. As such, he expects the capital injection Tech Data is set to receive to be used to strengthen their position and accelerate growth, "which they do by improving conditions for their customers to steal them away from other distributors or direct buying".
But more private equity money flowing into the channel raises questions. Channel partners, and observers more broadly, are asking themselves following this latest mega deal why so much PE money is being poured into the channel.
According to Lawrence, PE firms' interest in the channel is "reliable profitability". And the hope is that the money will strengthen the channel. However, there are distinctions to be made between the impact of the PE acquisition on VARs versus MSPs, especially when it comes to the Thoma Bravo acquisitions of the last few years.
"If I were running an MSP still, I might feel differently with Thoma Bravo buying up the whole tool stack," he told CPI.
Further, he is less concerned about the impact of a distributor acquisition because the areas that are affected the most by such a deal are less relevant in a distribution environment.
"PE likes to drive efficiency, often by spurning innovation. Luckily, distributors aren't doing a lot of innovating, and increases in efficiency will only benefit their partners. The same cannot be said for Thoma Bravo's acquisitions in the channel space. With Thoma Bravo, it's all about amalgamation and synergy, and only time will tell whether the net effect on the channel will be positive or negative."
For some, the continued flow of private equity money into the channel that the Tech Data deal demonstrates will most certainly bring negative effects. According to Raj Goel, CTO of New York City-based Brainlink, an Ingram Micro partner, channel players should watch out for private equity firms demanding larger rebates or discounts from manufacturers or making it more difficult for VARs and MSPs to qualify for rebates. Further, what all this PE money means is more mergers and consolidations, as well as MSPs and VARs disappearing along the way.
"PE isn't magic fairy dust," he warns. "The cost of IT for customers will increase… and the IT/VAR industry will become institutionalized. It's no different than healthcare or wealth management… All this PE money will lead to a lot of mergers and consolidations; highly profitable MSPs will stay private, moderately profitable ones will get bought out, merged or bundled and low profit or unprofitable MSPs and VARs will die."
Goldstein agrees that it is the bigger players that will ride the wave of the PE injections into the channel. "Bigger survives; it's a new world," he said. Indeed, he expects the Tech Data acquisition to increase the distie's standing in the channel. "I think the acquisition adds PR to the name Tech Data and makes them more relevant to partners. [It will] get them more notice and gives customers more a view of Tech Data as a bigger player."
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