Three ways VARs can finesse vendor consolidation

Vendor mergers and acquisitions can wreak havoc on a VAR. Here are three ways to minimize risk.

Virtually every technology solution provider knows that sinking feeling: You’ve invested time, training and (yes) money in a tight-knit relationship with a technology vendor partner, only to see that vendor acquired and the slate wiped clean.

“Re-establishing a relationship is a major challenge, especially when your company’s philosophy is proactive service,” said Frank Ballatore, president and founder of New England Computer Group Inc., in Danbury, Conn. “But you really can’t avoid it. In our mind, this is something that is part of the administrative work that we do for our clients, making sure that a merger or change of vendors doesn’t disrupt them.”

With high-tech mergers and acquisitions activity heating up as the market turns, I spoke with experienced solution providers for their insight about how to minimize the impact. Here are three common themes:

#1: Proactively seek secondary relationships in key product categories

David Dadian, CEO of Powersolution.com, a managed service provider (MSP) in Ho-Ho-Kus, N.J., said for years his company loyally represented just one company in a given category. But several of its MSP tools and technology partners were acquired in the past two years by GFI Software, with mixed results.

With HoundDog Technology, the acquisition has helped solidify certain capabilities. Likewise, when GFI bought Sunbelt Software, it shored up Powersolution.com’s endpoint security solutions. “It gave us a better solution than we previously had, and it helped us rebrand our mail protection software,” Dadian said.

Powersolution.com was about to sign Silverback as an MSP partner but pulled back as Dell acquired Silverback.  That buyout motivated Powersolution.com to get more proactive about seeking secondary relationships than in the past. “I haven’t lived through too many of the minuses of consolidation, but we realized we really needed to have something in our back pocket in each category. Don’t keep all your eggs in one basket,” he said.

#2: Be transparent

Of course, not every solution provider is eager to expand its portfolio of partner relationships. Security solution provider Towerwall Inc. in Framingham, Mass., is evaluating whether to focus on a more select group of vendors in order to build the best possible technical and consulting services around their technologies.

“Even smaller vendors now have different criteria with training and certifications,” said Towerwall CEO Michelle Drolet. “But we aren’t willing to go through the rigmarole. … The discounting from the vendors and resellers is almost ludicrous. We are training the customers to think they will always get a 50% discount, and this is not sustainable.”

This environment shaped Towerwall’s decision to drop its representation of PGP products when it was purchased by Symantec. When that acquisition happened, Towerwall reached out to all its customers offering to help them find another reseller if they chose to stick with the PGP platform. “We chose not to move forward,” said Drolet.

Transparency is also a great strategy on the vendor side, according to Jane Cage, COO of Heartland Technology Solutions, Joplin, Mo. Cage said it is much harder for her company to replace a vendor relationship than it is to take on a niche vendor. For this reason, Heartland chooses to be extremely open with its key vendor partners, holding a summit at least once a year to share its strategy – as well as some financial information – with key partners. “We go all the way with these vendors, we don’t just go to first base,” Cage said.

#3: Watch the market carefully and remember to start fresh

I was never a boy scout for obvious reasons, but I love the motto “be prepared.”  And that motto is taken to heart by Jim Riviello, COO of Turnberry Solutions Inc., a software integrator in Blue Bell, Pa.

“You need to stay in tune with what is hot,” Riviello said. “Keep aligned not only with what your customer needs, but also the specific goals of the vendor.”

The high-tech business tends to run in cycles, he noted, which means there are waves of consolidation roughly every five years. Being in the know will help your company act quickly and nimbly on any consolidation events. In Turnberry’s case, it was the acquisition of a key vendor -- BEA Software -- by industry giant Oracle.

But when you act, try not to focus on the past or you risk undermining yourself: Riviello reminds solution providers that when two high-tech companies merge, it is important for them to become champions of the change. Holding fast to policies of the past could be a recipe for an ultimate break-up.

“Turn into the helper. Remember what you were able to give the original vendor in terms of contacts and customer prospects, and look within to see where you can help internally and whether or not the relationship is worth that effort,” he said.

About the expert:
Heather Clancy is an award-winning business journalist in the New York area with more than 20 years experience. Her articles have appeared in Entrepreneur, Fortune Small Business, the International Herald Tribune and The New York Times. Clancy was previously editor at Computer Reseller News, a B2B trade publication covering news and trends about the high-tech channel.

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