'Traditional reselling is still attractive'

Credit veteran Eddie Pacey argues that more investors should look into acquiring traditional resellers claiming there's opportunity in a 'vastly under-rated market'

In conversation with an ex-colleague recently, the subject of reseller acquisitions arose, leading to the question of why so many traditional resellers no longer seem to attract the same interest or appetite.

While seemingly ridiculous chunks of money are thrown at acquisitions of fledgling or relatively new managed or cloud service providers, more traditional broader resellers, with elements of managed services or hosting, owner-owned since inception and consistently profitable since then, have to scrabble around to find anyone interested.

There are literally dozens of long standing traditional resellers where owners are now perhaps looking at retirement options, hoping to put their feet up after having enjoyed the benefits of successful reselling. They've enjoyed a comfortable lifestyle and are looking for an adequate and not extortionate final return, hopefully without the additional burden of earn out although happy to commit if required. Admittedly, some may need to be coaxed out of the notion that buyers will pay more than between 5-10 times EBITDA but they are inherently profitable and can offer real value to investors.

Some years back, there were investors out there, both corporate and private, willing to acquire traditional resellers; management buyouts were also common. It remains, erroneously in my view, a vastly under-rated market and many are missing the chance to acquire sound, solid-performing businesses for considerably less cost than many acquisitions seen today.

Some years ago, I was asked to assist a reseller (Microsoft LAR) through a particularly bad patch where there was real danger of insolvency. It took almost 18 months of committed assistance also by two other principal suppliers but we got them through it. It was a business I had previously met monthly and felt I knew like the back of my hand. Indeed, on one occasion in 2007, I gave a presentation on precisely this company to fellow credit managers and directors, running through their financials, their history and direction. In summation and close I indicated that the underlying business was exceptionally profitable and all that was needed was stronger control of lingering non-producing costs and, given funding availability, I would buy them.

The company was bought by private equity investors in 2008 (somewhat cheaply I felt) but they clearly saw what I saw and acted upon those same issues. A little over a year later, they in turn sold the business to Dimension Data yielding a very healthy return.

During the course of my time with Ideal Hardware and Bell Micro, I brought several resellers together and recommended many of those subsequently acquired by Kelway in its growth phase. There are still many like this out there patiently waiting and well worth the interest.