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What VARs can do when a strategic manufacturer is acquired

Mike Rothman discusses the importance of VARs developing a defined process to deal with the inevitability that a key supplier will be bought --a Plan B, and offers advice on how best to weather the storm.

If you've been in the VAR business for more than a few months, you've experienced the acquisition of a key manufacturer. That is the natural order of things in the technology space, and for security in particular. If anything, the rate of M&A is accelerating, so you should have a defined process to deal with the inevitability that a key supplier will be bought -- because sooner or later it will happen.

Let's be clear about acquisitions. They are much better for the manufacturer (the founders and early investors) than they are for customers and VARs. Just to put some back-of-the-envelope numbers out there, probably 75% of the deals adversely impact customers.

A large percentage of these deals are outright train wrecks. Momentum stops, turnover abounds, technology delivery dates slip, and integration of systems/processes takes time. So the reality is that acquisitions can be very problematic for the folks on the front lines (meaning YOU) dealing with customers, who now have to face a decision about the product you sold them.

Just to make sure we are clear on priorities, as a VAR, your first responsibility is to your customers. First and foremost, you want to make sure you address their issues and address them quickly. I recommend you send out an email about the deal the day it's announced. In many cases, the vendor will also send out some message about how wonderful the deal is, how it will take the company to the next level. Blah blah blah.

You need to be in the customer's face as well. THAT DAY. Customers are looking for guidance, and you need to provide it. Make it very clear that your loyalty is to them, not to the manufacturer and not to the acquirer. That goes a long way to pacifying the customers and solidifying their relationship with you.

Next, you need to figure out what the real impact of the deal is going to be. So as soon as it's practical (within a week or two), request a sit-down with your rep. You are looking for clear answers to some key questions. Are the founders moving forward? What is the integration plan with the acquirer's product line? How will the deal impact current delivery schedules? Will your credit and shipping policies change in the new regime?

At the same time, you should be looking very seriously at competitors. Odds are you probably have one or two competing offerings on your line card already. Take another look at these offerings and make sure they can meet the needs of your customers.

Ask for a meeting with the competitors as well. An acquisition of a key competitor is a great opportunity for them, and they will be happy to tell you why it's great. Push them on upgrade and/or swap-out programs. Try to extract preferential pricing, expanded margins and the like. The competitor, especially if they are still private, is looking at a narrow window to take market share -- so stick it to them while you can and negotiate more favorable business terms.

Finally, you need to monitor the situation closely. Look for signs of integration going awry. Be aware of excessive turnover. Keep track of shifting channel policies, payouts, and shipping/credit terms. It usually takes a quarter or two for companies to integrate processes and put forth a "going forward" plan. Give them some time to work it out, but not that much, because time waits for no one.

Security in technology is one of the most competitive businesses out there. There are lots of options, so don't be bashful. If the integration is not to your satisfaction, put Plan B into motion. That's what it's there for.

About the author
Mike Rothman is president and principal analyst of Security Incite, an industry analyst firm in Atlanta, and the author of The Pragmatic CSO: 12 Steps to Being a Security Master. Get more information about the Pragmatic CSO at http://www.pragmaticcso.com, read his blog at http://blog.securityincite.com, or reach him via e-mail at mike.rothman (at) securityincite (dot) com.


This was last published in June 2007

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