VARs face rocky times as credit fears escalate

Channel watchers are predicting a survival-of-the-fittest battle among smaller resellers as the UK’s growing credit crisis begins to bite.
As the UK sinks into its worst financial crisis this millennium, evidence is building that resellers are finding it increasingly tough to obtain credit and borrow money against receivables.

Channel merger and acquisition (M&A) activity is also expected to slow as banks refuse to finance highly leveraged deals.
Ian French, managing director at channel consultancy Siceo, said: “Whether you’re raising money to finance acquisitions, or invoice discounting to run your business at a working capital level, things will get tougher.

“Although good companies will come through this, we’ll see a shake-out among smaller firms that are not well financed or well run.”
French said it would be typical for a VAR that was previously able to borrow 80 per cent of the value of their receivables to now only be able to borrow 65 or 70 per cent.

Several firms attempting management buyouts or acquisitions have seen plans fall through since the money market crisis he added.
Nitin Joshi, founder of advisory firm ChannelMoney, said: “The credit crunch has had a direct impact on VARs. In the past three months the distribution channel has lost at least £5m from VAR insolvencies ­ the highest pro-rata figure for years.”
However, Eddie Pacey, director of credit at distributor Bell Micro, argued that the crisis, precipitated by Northern Rock’s financial difficulties is an “inter-bank problem”.

“Availability of bank funding may be stretched on big M&A deals, but I do not see the general day-to-day financing of resellers as a problem.”

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