A third of UK resellers are in more debt than they ever have been due to rising interest rates, according to commercial analyst Plimsoll.
However, rising rates could well be a timely wake-up call to resellers, claimed David Pattison, senior analyst at Plimsoll.
“Many resellers have been enticed by low interest rates and the lure of easy debt secured on rapidly rising property prices and have therefore been able to cover up flaws in their business strategies – effectively buying time. There is just enough time left for these firms to look seriously at their balance sheets and change direction,” he said.
Plimsoll has a track record of spotting the warning signs for businesses. Nearly nine out of 10 failed companies in the UK had earned a “danger” or “caution” rating from Plimsoll in the two years before their demise.
“Evidence suggest rates will go up again, so resellers need to carefully consider their exposure and monitor their debt levels. Those with no debt can breathe easy, but those with a certain level of debt should keep it in check,” said Pattison.
Plimsoll’s research also revealed a potential slowdown in acquisition activity among VARs.
“Rising rates should slow down the pace of acquisitions in the channel,” Pattison said. “While this is unlikely to affect deals already on the table, companies with some money in the bank will probably leave it there, in the shorter term at least. This may be bad news for the smaller firms hoping to sell out to the bigger players, but it is good news for those fearing a hostile takeover.”
However, telecoms VAR Chess, which last week completed its 21st acquisition, disagreed. Richard Btesh, corporate finance director at Chess, told CRN: “Where there is mass consolidation, such as in the telecoms space, rising rates will not slow down acquisition activity – it certainly will not slow Chess down.
“An acquisition that is right when the economy is at five per cent is also good at a seven or eight per cent rate,” he said. “Deals should not come off the table simply as a result of interest rate rises, all that would happen is the deal structure would be changed.”
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