About this time every year we hear predictions of aggressive consolidation in the channel, but few people are as well placed to act on that as Alan Watkins.
The joint head of private equity (PE) firm Blackhawk Capital, with business partner Kevin Lewis, has the financial clout and the industry experience to actually carry out his plans for a major mid-market player through a series of acquisitions.
Speaking to CRN recently, Watkins, a former Cisco UK boss, said: “There are smaller resellers that have a piece of the mid-market, but I don’t think there is a reseller big enough or competent enough to satisfy mid-market requirements across multiple vendors.
“When I was at Cisco we knew that some resellers were not doing what we wanted, but we did not have a way of measuring that. If everybody can be more aligned to what vendors can achieve, they will get more out of it rather than fighting it all the time. Vendors know customers want to buy from resellers and resellers really have the upper hand to drive the market aggressively.”
Watkins said he is in a position to identify and buy three to four of those resellers that are unsure of which direction to take their businesses, or whose owners are not keen to face “another five years of struggle and sleepless nights”.
“Some of the people that started their businesses four to 10 years ago have been through a couple of cycles of boom and bust, which becomes tiring,” he said.
“We see an opportunity to aggregate a number of resellers in particular vendor ecosystems and bring them together while taking some of the costs out. We come at this with hands-on experience and we understand what owners want. We want them to come and talk to us.
“They can either stay involved in the business once we have bought it, or they can choose to retire and spend time at the beach,” he said, adding that Blackhawk would be willing to buy across the UK, rather than limiting itself to a certain geographical area.
But Watkins warned sellers to be realistic in their prices. “Sellers have to understand the reality of where we are,” he said. “They also have to think carefully about the reasons why they want to sell. Some may think their business is worth 10 to 15 times EBITDA, but will be lucky to get six to eight times EBITDA.”
Watkins’ plans received a cool reception from two mid-market players, but both admitted he had the ability to carry out his goals.
Martin Hellawell, managing director of Softcat, said: “Alan is an impressive guy and he is the right person to do something like this. But I think it is a damn hard job – bringing together companies and putting them in a melting pot is difficult.
“Something like that would destroy the value of a company like Softcat, mainly because of the different cultures and achieving the right cultural fit,” he said.
Hellawell added that he has not come across a demand for a larger mid-market player, particularly with the likes of Softcat, Insight, 2e2 and Kelway playing in the space.
“I have never met a customer that said: ‘If only there was a company with bigger turnover’,” he said.
Des Lekerman, joint managing director of Eurodata, said: “Alan needs to come up with something more original than copying what other people have done – both Kelway and 2e2 are already doing this successfully.
“I would say there is more of an opportunity to integrate a number of smaller companies, but I don’t think the mid-market is that desperate for another large player.”
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