Resellers accounted for 41 per cent of the 421 takeovers involving UK IT companies in 1996, according to deal broker Regent Associates. It?s a shopping spree that clearly demonstrates economies of scale are becoming more important in the face of shrinking margins.
Steve King, CEO of Datrontech, which has bought eight distribution and service companies in the past 18 months, thinks distributors, in particular, seek two things through acquisitions: access to regional markets and specialist expertise. ?Even broadliners are looking for areas of specialisation to bolt on to the existing business,? he says.
Growth in the service industry and demand for end-to-end support are also drivers. ?Customers are looking for someone who can source all components of a solution,? says Rob Wirszycz, director general of the Computer Services and Software Association. The capital required for one-stop-shop support is high, forcing small players out, and small services companies are being snapped up. Datrontech?s acquisition of recycling firm RDC for #5 million and training reseller Xenon for #3.7 million clearly had this end-to-end solution in mind.
Peter Rowell, MD of Regent Associates, says speed of development is another factor: ?Small companies can have an idea in the morning and have the code ready by the afternoon. For the bigger companies it?s cheaper to buy than build.?
More venture capitalists are interested in IT than ever before. Much of the success of Rapid Group, which has doubled its turnover twice in the past year to #24 million by acquiring two former Apple Centres and a mail order firm, can be put down to its #3 million credit line, supplied by venture capitalist Venture Factors.
The past few weeks have seen Rapid acquire Mac dealer Glenlake Computers, accountancy vendor Agresso take over its Bristol-based reseller Ampersand, and Datrontech buy Xenon and RD Trading. Rowell forecasts the acquisition of vertical market Vars will increase. ?Vars with niche skills in transportation, education and retail are worth more in terms of market opportunity and share prices,? he says.
He points to Misys, which increased its presence in the finance market by skilful acquisition of Summit Systems and Frustrum, and Birmingham reseller Kalamazoo, which spent #21 million on a car dealer systems integrator, as two companies with the right idea about buying. Both are growing through acquisition of companies to expand market share in niche sectors.
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