Sangoma is paying $3M in cash plus about another million in stock and options for VoIP Supply. It borrowed the money. If VoIP Supply is adding C$15m ($11.3M US), then the $4M price tag is pretty decent.
SYNNEX is buying Westcon-Comstor's $2.18 billion North American and Latin America businesses for as much as $830M.
Ingram bought NETXUSA for $55M upfront and $10M in earn out for $125M in revenue, according to the 10Q filing in April 2016.
Slim margins in distribution. Slim margins in hardware. The slightly bigger margins are in services.
Sangoma also purchased FreePBX/Schmooze in 2015.
Maybe the parts business of VoIP isn't enough. Maybe they need to be selling bundles, services, maintenance, etc. Maybe VoIP Supply is a good next progression after FreePBX.
]]>Last year, Tech Data negotiated to acquire Avnet Technology Solutions for $2.6 billion. Avnet TS brings in $9.65 Billion in revenue and will increase Tech Data's share of data center revenue from just 29 percent to 45 percent. This move also gives Tech Data a presence in Asia-Pacific.
Tech Data competes with Ingram, ARROW, SYNNEX, Westcon-Comstor and to a lesser extent Jenne, ScanSource and CDW.
"Westcon has struggled in recent quarters, with revenue falling 10 percent to $2.26 billion and earnings before interest, taxation, depreciation and amortization (EBITDA) falling 18 percent to $42.9 million," according to reports. This is not unusual in the VAD space. ScanSource and other VADs have been facing declining revenue and margins due to the turbulence of the IT space.
"SYNNEX has reached an agreement to buy the North American and Latin American Westcon-Comstor business from Datatec," according to Seeking Alpha. The financials of the deal are complicated and range between $715 and $915 million depending on earn out.
Most analysts have commented that this is a as good a fit (Westcon+Synnex) as TD-AVnetTS. It fills in holes both in line cards as well as geography.
Consolidation is happening at every level of the IT/tech/telecom sector. Less choice for the partner and customer is one result. The other is usually a disorganized organization.
The other blockbuster deal is in the Data Center space. Digital Realty Trust (which acquired TELX) is now buying data center wholesaler DuPont Fabros for $7.6 billion. "DuPont Fabros operates 12 data centers in three major U.S. markets, including Silicon Valley and Northern Virginia, while Digital Realty operates 145 data centers globally." Dupont Fabros is the data center landlord to Yahoo, Facebook, Apple and Microsoft. Those are nice tenants to have if you are DRT.
This is more than either CenturyLink or Verizon received for selling their data center business. C-Link sold 57 data centers to a group of PE firms for $2.15 billion and a piece of the new firm (now known as Cyxtera Technologies). Cyxtera is a combo of Savvis and Qwest data centers that C-Link paid much more than the $2.5B C-Link paid just for Savvis. (Buy high sell low!) VZ sold its 24 data centers to Equinix for $3.6 billion, which it bought from Terremark for $1.4B.
Dany Bouchedid, CEO of COLOTRAQ, the data center master agency, said, "This definitely establishes DLR in the wholesale colocation space more than ever. Dupont's data centers are enormous with next gen gear and mechanicals. In addition, Dupont owns their PPE (property plant and equipment) with some of their sites having a decent amount of land. Their PUEs are industry leading and their cooling and UPS technologies are ahead of their time. DLR will be a great platform for them to further market their capabilities."
Data Center is still a hot sector with PE firms swooping in as well as consolidation by the REITs.
]]>By that, I mean, if you can fog that mirror, you are a partner.
Shouldn't partner programs be more like the NFL or NHL draft than an army recruitment office?
Wouldn't it be better to not sign up everyone?
It would certainly help providers' partners if there was demand for the service offering and if there was just a handful of partners to supply that demand. Instead we have little demand* for the services and everyone can be a partner.
That is the VAD theory, because a value add distributor is similar to a store. They can carry anything. They are in logistics, warehousing and distribution. That is all the value they bring. In stock or not?
On the Master Agent side, I just don't understand the signing up of 20+ UC providers, 10+ data center providers and 10+ Microsoft Partners.
For perspective, USLEC had 26,000 clients when Paetec bought them; Cbeyond had 51K when Birch acquired it; 8x8 has 48K. These aren't large numbers. "In 2012, according to U.S. Census Bureau data, there were 5.73 million employer firms in the US. Firms with fewer than 500 workers accounted for 99.7 percent of those businesses, and businesses with less than 20 workers made up 89.6 percent." [SBE] The sweet spot for businesses, according to CompTIA, is 10-100 employees, which represents a 20% slice of the overall market - or 1.8 million businesses. FYI, 50K of 5M is 1%.
What's my point? No one is crushing it (or ever will). A lack of funds, crappy marketing (if any), no focus and flawed strategy that is poorly executed are all factors that mess with success in telecom. If AT BEST you are going to get 50K businesses, do you really need 450 to 2500 partners signed up to hit it?
Wouldn't providers do better with the zealots?
Verizon and BellSouth/AT&T used to be exclusive. Partners could only sell their services. It worked out well for both parties. It meant there was focus, specialization. Co-selling worked too.
By signing up every master agency, vendors think they get access to more partners. They don't. Most partners use 5 (five) master agents. VARs use at least 2 (more likely 3) different VADs. So by signing up more partners, vendors get their logo in more places, but they don't get more partners. In fact, what they DO get is to fork over more dollars for events.
The model can't last much longer. And if they did the numbers over the last even 4 years, they would find that Pareto knew exactly what he was talking about. Also, that the amount of busy work given to channel managers is just piling up. Hard to hit quota when bogged down with recruiting, quoting, selling, reporting, funnel and a hundred other things.
What vendors confuse is exposure for demand; logo placement for marketing.
I've written about it often and enough. Where's the competitive analysis of the marketplace? Who is your target? Why do they buy? Why YOU and not THEM?
It is very different with network. Lit buildings and fiber routes are the factor. You don't have that with managed services or security or cloud. The limiting factor for voice/VoIP/UC is LNP which has mostly been solved (except for pockets of independent IOC territories).
Put up the red velvet rope. Sign up, train, on-board and work with partners who actually want to work with you. And limit that. It builds up the relationships that you have. It makes your partners stronger.
It isn't going to limit vendor revenues, because vendors are probably quoting and saying YES to stuff that they shouldn't be. Vendors are NOT getting deals that they would like to - or that they built for - because they are too busy chasing every single partner and every single opportunity. In the process, the vendors are diluting their message (brand) and wearing out their channel managers. But hey what do I know. I have not only seen this playbook, everyone has a copy of it, and yet no one is winning using it.
*DEMAND = after 15 years, UC has only penetrated to 29% of the market? CLECs have been around since 1996 and can't get more than 1% of the market - in 20+ years.
]]>When VADs want you to sell hardware, it was always a possibility. It takes less than an hour to signup with SYNNEX, Tech Data or Ingram. Yet what Agent wants to sell hardware? There are at least 3 reasons why Agents (traditional telecom brokers) will not sell hardware.
RMAs - returns. Dealing with hardware returns is a pain.
Billing - Agents don't have a billing system. Agents let the providers deal with install, billing and returns.
Compensation - Hardware is a one-time sale and payment and it has really Small Margins! We prefer Hardware-as-a-service with recurring revenue and providers handling the implementation.
]]>RingCentral's channel head penned a post about the strategy to hit all the large master agencies. I see press releases every week of providers signing on with distributors, because that is what master agents are now. They even call themselves distributors. They are like a brokerage house of vendor contracts.
Agents used to get a reputation as commission shoppers, but in today's environment it is almost encouraged. The Agent Alliance was set up to help volume buy for master agents. To reduce risk by putting a lot deals through one good contract.
Masters pass through sales back and forth all the time. For example, Verizon deals typically go through one of the handful of platinum partners. Some of it has to do with quota and volume needed. Some of it has to do with the one-stop shop experience that they are portraying. Some of it has to do with programs like VZ, AT&T and Comcast needing experts to navigate the programs.
The masters look more and more like VADs such as AVNET or Tech Data. Large numbers of vendors are trying to get their SKUs in the catalog with the strategy of hope that this will be enough. That if we can just get in Jenne's catalog we will be sailing!
There is a big problem with that: sell through.
What happens after you ink the deal with the VAD?
These programs work great for a specific business. One type of business is specialty shop that offers a narrow niche of products, like Fireeye or Juniper (for people that don't want Cisco). Another is a vendor with demand created by the vendor in the buyers' realm, like IBM, Cisco, Comcast, Verizon or Microsoft.
In the case of Microsoft and IBM, software licensing for under 10K seats is a pain in the butt. Better to let a VAD handle that. It is what they are designed for. In the case of hardware like Cisco or APC, the VAD is like a warehouse and logistics partner. Microsoft and Cisco helped create demand by making a certification ecosystem that generated demand through experts who were married to that product line. (Very hard to duplicate.)
Now if you are just one of 20+ VoIP providers in a catalog, how does that help you? It is a commodity game at that rate. To a certain extent, you are hoping for name recognition. For example, if it is LSI, Panterra, RingCentral, 8x8, Vonage Business, Star2Star, Broadview, Broadvoice, ShoreTel, West, Evolve IP, Momentum and say an MSP reselling CoreDial underhis own label. How does a partner decide? Seriously. I would be curious how executives at the ITSPs think that decision tree goes.
Factors that may influence that decision include price, SPIFF, integration, feature set, the channel manager and past experience.
Most VARs have accounts with multiple VADs (TD, Ingram, D&H, Synnex), in case the gear is not in stock near the customer site. However, when moving to white-label or hosted solutions like email, backup, and even software licensing, VARs will be picking one vendor. They won't want to log into multiple systems to see the status of that client's email or license is. One portal. So now those huge numbers of VARs who would buy gear from you just shrank because they are picking a single source for hosting.
Agents don't want to become familiar with 20 provider systems and platforms. They want far less. The more familiar you are with a service and the environment around that vendor (quoting, features, ordering, support), the easier it is to sell. Less unknowns means comfort, means trust. Trust is required for sales. Remember that list of VoIP Providers? Name recognition - the brand - can convey trust.
There is an expensive and time consuming process for sell through. DSCI and TelePacific have been going through that since the merger. National road tours, webinars, numerous master agent events, expos like NextGen Cloud and Channel Partners, promotions, SPIFFs - to tell the story, to get your name in front of the partners. It isn't ink and done. It is ink, then go push that rock up the hill every single day! Hustlin' as Gary Vee says.
The other factor is sales friction. Personally, I never even consider selling cable because waiting 15 days for a site survey is total garbage, especially when the direct side gets it done in three days. There are carriers I won't work with because I have in the past and got burned. (I am not alone here.) The easier you are to do business with the better.
It is getting harder and harder to sell through channel because of a number of factors including industry consolidation; musical chairs; too many vendors not enough partners; Noise and Attention; the cost of sales acquisition during both a price war and a SPIFF war; and buyer budget constraints.
The noise of UCaas, SD-WAN, DDoS Mitigation and cyber-security are getting louder every day. To the point that it is just noise, not a resonating message, but more like when that car pulls up to you at the traffic light with the music blaring drowning out the music in your own car. So you roll up the windows to drown it out. Yeah, that's where we are.
]]>Some are wondering what vendors to look at. Who is real and who is not. Who will be around to pay commissions in three years?
Hint to one data center company: Don't tell partners that you are owned by a private equity firm famous for cashing out. That isn't a way to win our minds or orders. Also, do NOT tell partners at a master agency event that they can go direct with you. WTF?!
In the past month I have been asked numerous times if Microcorp is for sale. The answer: "As a member of the Microcorp Advisory Council, I can assure Microcorp is not for sale but actively looking to buy!
Since the ScanSource deal, a couple of master agencies have announced that they were investing in the business and want your business. (see HERE and HERE.) One sub-agent seemed upset by this and called in fear-mongering. Is it?
The VAD space is in turmoil. All of them are seeing revenue drop. All are trying to figure out how to take advantage of cloud and MRR to shore up revenue erosion. ScanSource gambled on an easy fix - buying Inteisys - except that their stock tumbled afterwards.
If you haven't worked with a VAD, it isn't exactly the same as what Agents know as a Master Agency. VADs are more automated and focus on logistics and distribution of licenses and hardware. Sales isn't about co-selling, but product information. There isn't a whole lot of need to order track a software license or a server. VADs run on co-marketing dollars and razor thin margins. Masters are labor intensive. The hand holding that the agents and VARs will need to navigate selling telecom, cloud and managed services will be a shocker for the likes of ScanSource.
The upset sub-agent must not understand what every Agent I have ever talked to does: Diversify your income streams because everyone gets screwed in this business. . If ScanSource held you to a firm partner contract with quota and activity requirements - or at some point stops paying your commission - what do you do? It will cost you almost a million dollars and years of your life.
It's about mitigating risk. No one has a crystal ball, but you can take steps to give yourselves a safety net. You don't have to, but it is sound business practice.
The other dilemma, which kind of caused all this, is the lack of new partners. The VAR segment has shrunk in the last 4 years. Too long to go into now, but with moves that Microsoft and Cisco made, some partners opted to pivot out of the VAR space. Others made the move to MRR as an MSP with a lot less emphasis on hardware sales.
At the same time, price erosion resulted in commission decline. Meanwhile, not many new faces are entering the channel. At every channel event - I have been to 4 in the last few months - the number of folks under 45 is a fraction of those partners over 45. This business is getting old.
At the same time, more vendors are entering the marketplace for cloud, managed services, IOT, analytics, blah, blah, blah. More vendors but not more salespeople. We are at a point where the channel is the cheaper option for sales for most vendors and carriers. In the UCaaS space half of new mid-market logos come from channel partners. The cost of sales via channel is lower than the cost of a direct sale. But without new blood in the channel, what happens in even 5 years?
More vendors coming into the space with even the same number of partners just doesn't work out mathematically. Verizon is aware of the problem and is working on it with partners. But they seem to be the only one, because it seems many are looking globally for sales right now:
AVANT hires a UK channel manager. Intelysis goes to Europe. Tech Data is buying Avnet's technology solutions group for $2.6 billion to expand into Asia.
]]>Both sides will need to adapt. Most of the servers being bought now are being bought by the likes of Amazon, Rackspace, Facebook and Microsoft. They are not buying through Ingram or Tech Data. That affects their business in yet to be seen ways.
Tech Data's business model is predicated on two things: logistics of demand and co-marketing dollars. TD and Ingram (and their siblings) live on razor thin margins for hardware. They are pure distribution logistics for hardware and software licensing that is in demand. In a purely cloud world, those warehouses scattered around the globe may have to be refurbished into data centers to house SAAS gear. If they can even pivot that way.
Just to showcase the difference in mindset between a true VAD like Ingram and a amaster agency that calls itself a VAD, look at this article: UCC Solutions: What's Trending in 2016? by Ingram Micro. To Ingram, Logitech ConferenceCam Connect, Sennheiser Presence UC headset, Jabra EVOLVE and Plantronics Voyager 5200 UC. Is that what is trending in UC&C? Or is that what hardware is selling (or more likely being promoted)?
For years, we have waited to see if Insight or D&H or SYNNEX would buy a master agency in order to ramp up the shift to MRR. It hasn't happened yet.
Now that ADTRAN is pushing its hardware-as-a-service model, VADs have to consider what that means to their meager margins, sooner rather than later.
The other shift that will affect the VADs is the shift to SD-WAN. This means white box CPE in place of routers, switches, IADs, etc. The SD-WAN appliance will be just hardware with the software control coming from the SD-WAN provider. That may affect distribution of CPE too. Does the MSO or CLEC drop ship CPE from TD or Ingram?
In the Faces of July gallery on CP, the number of companies that I have never heard of reached a new high. Someone mentioned at CompTIA that 600 new vendors entered the market. At the same time that the number of channel partners is actually shrinking.
I look around the room at these conferences and see mostly gray hair and bald heads. There are not a large number of folks under 30 in the crowds. Consider the number of mergers in the partner space as older partners ramp out or look to retire.
One joke about telecom is no one got here on purpose. Our sector isn't recruiting on college campuses or advertising the joys of channel partner life. This is a heavily sales dependent business. How many people go to college wanting to be in sales?
A lot of different pieces are on the table. It will be interesting to see how this puzzle is put together.
]]>After rumors swirled at CP Expo in Vegas in March, the announcement is finally here: Sandler Partners is acquiring X4. This will create an entity that is doing $65M in revenue, referenced as second only to one master agency.
It is interested that some media call it a master agency, when in the press release, Sandler Partners described themselves as America's Fastest Growing Distributor Of Connectivity & Cloud Services. X4 is called a master agency though.
I asked around about the term Master Agency. Regional organizations definitely use that term. Telarus does a ton of SEO around the term "master agent". In fact, until recently, they hosted a community on TMC around that term (see here; available now*). However, they also describe themselves as a value added distributor and offer circuit monitoring.
No wonder vendors are chasing Jenne, SYNNEX, Tech Data and Ingram. If the masters are now just VADs, they might as well chase big VADs.
Just to offer how Jenne describes itself: "Jenne, Inc., a value added distributor of technology products and solutions focusing on voice, video, data networking, premises security and the cloud."
I have said that masters would slam into the VAD wall soon. Just the share size of the product catalog would mean that they would have to start looking at the VAD model. Plus business model wise, they are similar with both being driven by vendor co-marketing dollars and margins.
The big difference between the VADs that distribute hardware traditionally and the VADs that were slinging T1s traditionally is one of Demand. The bigger vendors - Cisco, IBM, HP - create demand that the VADs distribute. They are a logistics business for boxes and software licenses. As we move to an As-a-Service model for everything (including hardware and Microsoft Surface), delivery and logistics change immensely as the price per sale drops (from one-time with maintenance to MRR).
Masters have some vendors with true demand - cablecos and the big 4 LECs, but for everything else they expect the demand to be created by the channel partner. That didn't work for the number 2 and number 3 power backup companies behind APC.
It didn't work for Juniper or Foundry. They had to create demand by building a better devices and offering training.
VMWare doesn't leave it up to the channel for demand. They brand, market, advertise and work the channel. There's a lesson there for the next level providers.
I am told that there will more mergers like Sandler-X4 coming. I don't doubt it. Many traditional masters are ready for retirement. Some don't want to be bothered with this cloud craze. Others are looking for scale to wield some leverage with the vendors.
This is the first acquisition for Sandler Partners. X4 is geographically distant. It will be interesting to see how that factors into the success of this transaction.
A branding expert writes "study after study puts the failure rate of most M&A deals at a stunning 70-90%.... The most common reasons for failure: people, politics and a failure to drive "buy-in" and alignment of all stakeholders." Culture and Buy-in of ALL employees will be factors in success.
No layoffs are pending, but a deal of this magnitude can't work without "Synergies", which is the banker code for layoffs. Curt Allen of X4 is staying on as President but the other 3 co-founders of X4 are not staying after integration. There will attrition with employees that don't buy-in, I suppose.
Sandler Partners now has a combined 40 channel managers and 140 direct vendor relationships.
Stay tuned.
* Yes that was a blatant plug but this blog is on the TMC webiste and the keyword is available. Email me or Anthony Graffeo
BTW, if you want to get in on the discussion, check out LinkedIn HERE.
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