By Arlin Sorensen, O and Founder of the Heartland Companies which includes HTG Peer Groups
M&A is definitely the buzz in the channel today. Not only on the IT managed services provider (MSP)/solutions provider front, but also in the vendor/cloud provider area as well. Things are changing rapidly as companies acquire, merge, partner, or find any number of ways to combine forces. The landscape changes daily, and the discussion is about where the next deal will come from.
There are brokers by the dozens out looking for companies that want to acquire or be acquired. For some, this has been a great time to take some cash and risk off the table. They’ve received great multiples of EBITDA and are happy with their return. For others, they have discovered that the hard work they have put into their company the last 20 to 30 years does not translate into value for someone else, and the retirement nest egg they have been counting on is much smaller than hoped for.
The M&A activity is not unique to the IT industry at all. Consolidation is part of the way businesses and industries mature, and the IT industry is moving from a relative new industry to a more seasoned and mature one. Part of that transition is for companies to consolidate with other companies to expand their market position. Part of it is the rollup of like businesses to create a large industry player that can cover a region or the entire nation. Part of it is the strong buying the weak to gain market expansion. It is just part of what happens as an industry matures and the force of business takes over.
It does change the dynamic in the market somewhat. On the MSP side, we have some large scale rollups that are able to provide nationwide coverage in major cities. That is a competitive advantage if delivery matches up with the coverage model. It also allows for some efficiencies in back office areas. Of course, keeping that relationship local is key for SMB clients. But this new phenomenon does change the dynamics for some.
On the vendor side, we see the large consuming the small and a lot of activity around cloud and other new growth areas. For larger vendors, it often makes far more sense to acquire technologies or talent than trying to build it organically from scratch. This trend will continue and accelerate, again based on the maturing of the IT industry.
So what does that mean to those of us involved in the industry? In a word, faster and more change. It will become more important than ever to stay abreast of the changes happening in the industry. We need to stay close to our vendor partners — to treat them exactly as such, PARTNERS — and develop transparent relationships so we don’t get blindsided by change. We also need to pay attention in our local and regional markets — to either know what competitors are doing or to leverage opportunities to use M&A as a growth strategy for our own business.
M&A is not for the faint of heart, but it can be a fantastic tool to grow our companies. With change always comes opportunity. That is the bottom line result of what is happening right now. The industry is ripe with opportunity for those who will step up and seize it!
Arlin Sorensen serves as the CEO and Founder of the Heartland Companies which includes HTG Peer Groups. When he is not traveling to speak and consult, he is home on his farm in Iowa with his wife Nancy. He is a proud “Pop” to four precocious grandchildren who serve as daily reminders of why he is intentionally living to leave a strong legacy of faith and integrity. He loves making a difference in the lives and businesses of small business owners. You can reach him at email@example.com or on Twitter @asorensen.
This article originally appeared on the HTG Peer Groups Blog.