Five Good Reasons VARs Should Consider Merging Now

The time is ripe for VARs to merge!

There are many compelling reasons for VARs to consider mergers in the wake of the worst recession in over 50 years. Not the least of which is this sobering fact from the March 2010 issue of CRN: the number of VARs in North America dropped 50,000 over the last two years to 200,000. Apparently, most of the busts involved smaller VARs earning under $1 million in annual revenue.

I’ve always been a proponent of mergers as a particularly effective means to revenue growth, greater efficiency and, yes, survival. I’ll also be the first to admit that not all mergers work out. The ones that don’t succeed almost always ignore such important considerations as management philosophy, complementary skills, work responsibilities and profit-sharing expectations.

Still, when done properly, mergers are a good way to get the combined firm to the “next level” of performance and profitability.

Here are five very good reasons VARs should be looking around for suitable partners to woo before spring is over and all the good matches are gone.

1. Survival of the fittest. The recession saw many companies – big and small – go under. While surviving has made many VARs stronger, they’re also a bit wounded from the revenue cliff they walked off in 2009. Here’s the good news: there are lots of VARs are out there in the same situation. That means VARs now have an unparalleled opportunity to merge with firms that complement them in some strategic way. Why? Because the ones left standing have survived, and as a result have good business DNA.
2. Economies of scale. When companies merge, opportunities abound to shave operating costs. Back office activities such as billing and collections, marketing activities, consulting services – each represents a potential cost savings if the work is allocated smartly.
3. New services. VARs that merge often add different consulting expertise to the mix. One VAR may have particular expertise in manufacturing while another has knowledge of HR systems. This presents the combined firm with an opportunity to cross sell services into the respective customer bases, increasing the revenue stream from existing customers.
4. Bench strength. One universal problem VARs experience is the occasional shortage of consultants to work on scheduled projects. Merged firms often have a deeper bench from which to assign consultants based on skills, availability and proximity to the project.
5. Financial resources. Even though the recession is technically over, banks continue to resist lending money, especially to small business. A merged firm tends to have deeper pockets from which to draw funds for investments in strategic initiatives. More equity partners also improve the chances a firm will get approval for financing from stingy banks simply because there is more personal capital to leverage.

Can you think of any reasons why VARs should consider merging in the aftermath of The Great Recession?