The dark side of Australian channel consolidation

Looking at the most-read news stories on the CRN website over recent months, there’s a theme. We’re witnessing an intense period of consolidation across the IT channel.

If you’re a high-performing outfit, it could be time to consider your exit strategy. Buyers are ready and waiting. Hats off to Harbour IT, a homegrown success story that was the target of a significant investment by Canon. The price paid has not been disclosed but considering some of the upbeat stories we’ve heard out of Harbour IT in recent times, not to mention Canon’s $36 billion market cap, I’d like to think it was a decent sum. 

Harbour is far from alone in the channel deal machine. Already this month we have heard that Sydney Microsoft house Breeze and Brisbane's Technology Effect will be rolled up in a public float by new parent Montech Holdings. The mastermind behind the deal is David Shein – no stranger to major M&A, having helped grow ComTech to revenues of $700 million and 1400 staff before selling it to Dimension Data in 2001 (DiData, of course, is currently working through its $171 million takeover of Oakton).

Buying fever continues apace in vendorland. Cisco’s most recent buying spree – it pounced on OpenStack specialists Metacloud and semiconductor memory outfit Memoir Systems – looks like small potatoes when seen against SAP’s monster acquisition of travel expense management vendor Concur for $8.3 billion.

We've seen reverse consolidation too, with both HP and Symantec splitting down product lines. For HP, this could pave the way for renewed M&A, especially given the rumours circling EMC, which is said to be on the block, with both HP and Dell in the frame at one point or another for some kind of mega “merger of equals”. For Symantec, the demerger is evidence that its 2005 buyout of Veritas has come unstuck.

Striking it rich

Behind many of these deals are entrepreneurs searching for, and finding, a golden exit. Something I love about the channel is the ambition of the people who build these businesses. All of them dream of striking gold; plenty succeed.

Which is why it is so disheartening to see the dark side of consolidation. In the past month or two, we’ve reported on half a dozen insolvencies across the IT and telco space (and those are just the ones we know about). NCSS, Remora, Tonnex, The Laptop Factory, phone dealer Mobilink, CPS Technology Group... the sorry list goes on.

This rash of ICT channel failures represent potential bad debts of almost $17 million, including nearly $12 million to unsecured creditors, many of them trade suppliers – notably distributors. 

While I feel for the company owners who have to break the bad news to staff or tell suppliers they won’t be getting paid, I feel much worse for the suppliers. Redundant workers can at least claw back their entitlements from a government scheme, but too often trade suppliers lose the lot. Insured or not, disties are often left holding the bag (though I have less sympathy when suppliers see the writing on the wall but keep propping up an unsustainable business).

The group I feel for the least? Those directors who, after causing all this heartache, re-emerge as a debt-free phoenix and trade on. That’s one theme of consolidation the channel could do without.