It only seems like yesterday that hybrid channel players were falling over themselves to offload their distribution arms.
Two of the most memorable in recent times was Computacenter selling its distribution business to Ingram in 2009, and more recently SCC sold its distribution arm SDG to Tech Data for £300m-plus in 2012. React Technologies and GSS are among the other resellers to have quit their distribution activities in recent years.
But in the same week we have seen Viglen merge with XMA, and print consumables specialist QC supplies swallowed by XMA, as parent company Westcoast Holdings bolsters its system builder/OEM division. Days later, components distributor VIP Group snapped up system builder Ergo Computers.
Does this mean a trend is coming back? Will those that dumped their distribution operation actually come to regret it and start lamenting the “good old days”?
The biggest concerns and fears that most normal VARs have of the hybrid model is that they will somehow lose out to the competitor that is affiliated with a distributor, because it will get more favourable pricing and priority treatment.
However, Joe Hemani, chief executive of Westcoast, said nothing could be further from the truth. “I cannot give a better price to a [Westcoast] Group company because of auditing rules,” he said. “Even if I wanted to. We would never get our management accounts signed off. And now it is almost as if XMA and now Viglen will get a tougher deal than most.”
Hemani stressed that the opportunity was equal for everyone.
“If some are protesting over just a few percentage points, you have to ask if they are going to be around for that much longer. Surely there are more important things to worry about,” he said.
“If the sun is shining I don’t go outside and a beam lands on just me. It shines for everyone and it is up to you to do everything you can to be successful.”
He said the needs of customers have changed now as well, and operating a hybrid model just gives them the ability to provide a full end-to-end solution.
“At the end of the day the recipient decides the value, not the purveyor,” he said. “We are incidental in the chain.”
Bordan Tkachuk, chairman of the newly merged Viglen and XMA, agreed that no preferential treatment was meted out.
“This is true,” he said. “In fact we are probably worse off as a result of this deal as the terms we get from Westcoast now are less favourable than they were before. “I am seeing first-hand the Chinese walls that have been built up between Westcoast and XMA, and now Viglen – it is something that is taken very seriously, and so it should be,” he added.
“From my perspective it is a completely fair playing field.” Jeremy Davies, chief executive of analyst firm Context, said the move was more about local players serving their markets better.
“With the advent of the economic crisis and BYOD, where you are seeing businesses buying from resellers or retail, or even direct, a fog has come down over the whole industry,” he said.
“Before the climate changed it was very much a space for the multi-national players – big was best. But recently, the likes of Westcoast, Midwich and Micro-P are working really well and know their markets, so are able to bring other things to the party including excellent knowledge and services.
“I wouldn’t so much say it is the rise of the hybrid, but more the rise of the local distributor or channel player realising that having local knowledge gives them a huge advantage in the market. As well as working locally, they can work flexibly and really understand local deals and local customers.”
Davies said that after all the bad news around a year ago, this is a refreshing trend. “It shows that change is happening but also proves all the channel doomsayers wrong again,” he said. “The channel is one of the most adaptive business models that exists in the world and it is very innovative.”
A very British thing
Softcat chairman Martin Hellawell said the hybrid model was very much a British thing. “There have always been exceptions and you accept the companies that do it,” he said.
“For example, up until now XMA has been pretty focused on one particular market – education. However, if further down the line after buying Viglen they go out and buy a more mainstream reseller, then more questions may be raised.
“From a vendor point of view they set very comfortably as part of a volume sale. Vendors are only getting more global in their thinking, but the hybrid model is very much a UK and British thing. They have always struggled to come to terms with it as they don’t feel it is a very clean model.”
Hellawell claims there is a resurgence of sorts due to the activity and it may lead to more hybrid behaviour over the next couple of years, “I feel it will get less again as they decide what they need. But I don’t see the two coexisting indefinitely.”
Rich Marsden, director of VIP Computer Centre, the UK distribution arm of VIP Group, said it is a natural fit for distributors to move into the system builder space. “VIP’s reason for purchasing firstly CMS Computers (the consumer-focused system builder it bought in 2011) and then Ergo is diversification,” he said.
“The strategy from a group level is to diversify and that’s something everyone is doing. And if you’re a distributor, it’s a natural progression to buy a systems integrator as you already hold all the SKUs in stock to build PCs.”
Marsden stressed the group’s acquisition strategy is designed carefully to avoid conflict with reseller partners. “If you look at companies in the VIP Group, the Zoostorm brand [built by CMS] sold through resellers and Ergo is in a very niche market which I don’t believe any of our customers play in,” he said.
However, Frank Salmon, chief executive of distributor CMS Distribution, vowed his firm will remain a trade-only outfit. “It seems to be going full circle,” he said. “SCC and Computacenter offloaded their distribution arms and it’s interesting to see a couple of distributors now buying reseller arms. We are certainly not in business to create a hybrid model.”
Westcoast adds two more bricks to expanding empire
Westcoast Holdings started the New Year with two acquisitions in the same week, building more muscle on its reseller arm XMA. The first was the much publicised merger between XMA and Viglen – previously owned by Lord Alan Sugar.
The two firms will continue to operate separately and compete for tenders, but will be managed jointly with Bordan Tkachuk, former Viglen chief, taking over as chairman of the two firms and Lee Hemani, former chief of XMA, taking the joint managing director role. Westcoast Group boss Joe Hemani said the move reflected his passion for education.
“It is about continuing to offer the services that people need. We provide best-of-breed products in the education sector and the good thing is both companies are product agnostic: if customers want Toshiba, they will get it; if they want Apple, they will get it,” he said. He stressed that the move will not affect existing Westcoast relationships. “We want to work with all other resellers in the education and public sector space,” he said.
Westcoast Group’s second buy was print consumables specialist QC Supplies. The firm will add another string to the XMA/Viglen bow, Hemani said. And he hinted that he wasn’t finished yet, saying there was ‘more to come’ from Westcoast.
Just a week later, distributor VIP Group snapped up Ergo Computing, a public sector supplier which builds its own notebooks and tablets and boasts annual sales of £10m. VIP Group chairman Jatti Sahni said the acquisition would produce a “stronger and more competitive Ergo”.
“We have been looking to diversify into this market sector for some time and we see many synergies and spin-off benefits by working in partnership with Ergo,” Sahni added. Ergo will continue to trade as an independent company within the VIP Group, the distributor confirmed.
Ergo managing director Neil Bellamy, who will continue in his position, said: “This is an exciting time for Ergo Computing and being part of a larger group will ensure we can build on our success in IT products and services within the public sector.”
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