Stop me if you've heard this one before, but it seems that just about every tier-two integrator in the market is up for sale right now. We all know that every business has a price but, even so, the number of rumours flying about at the moment is unusually high.
I have to admit I find it a little surprising in a market that is very buoyant. Most of the players I've talked to in this space lately report that they are picking and choosing the business they do because they can afford to turn their noses up when a possible contract doesn't feel right. So what's the story here?
One reason could be the concentration of desirable contracts within a smaller number of players. Although there is definitely good business to be done, merger and acquisition action in the past couple of years has seen a small number of tier-one resellers tighten their grip on the honeypots, leaving the rest of the market to fight for scraps from the table.
Building a business on a core group of stable customers is fine for SMB resellers, but the level of investment is too high for that model to work if you are plying your trade in the corporate market.
These customers are usually operating in a number of states and need a supplier that can service their needs across the country. That makes it increasingly difficult to be viable unless you have offices coast to coast.
There's also the glass ceiling effect to consider. Businesses tend to grow in spurts but hit regular pain points along the way. As a tier-two integrator, there comes a point where you are successful but hit a plateau because you don't have the credibility to make your way into the next level of corporate boardroom. At this point you either have to settle for your lot or join forces with similar companies that share your elevated aspirations.
Leading Solutions is a classic example. The Melbourne-based company was recording annual revenues of about $100 million at the back-end of last year and had built a credible reputation, particularly in the education market. But organic growth was becoming difficult to achieve, at least at a rapid rate. The solution was a merger with BCA IT, which created the largest privately owned reseller in the Australian market and took it into competition with listed heavyweights like Commander and Data#3.
But although it now has the scale to compete with the big boys, Leading is still on the front foot looking for more infrastructure buyouts. Managing director, Frank Colli, has highlighted geography as the central goal with Perth, Adelaide and Canberra all on the radar.
It is nothing more than speculation at this stage but my money would be on ComputerCorp as his major target. The Perth-based integrator has some tidy sub-contracting business in Canberra and would effectively kill two birds with one stone.
ComputerCorp shares were worth $0.14 at the time of press, substantially less than the $0.25 when it bought Fed IT in September last year. The departure of company founder, Hugh Smith, also removes the potential stumbling block of emotional attachment.
No matter which competitor Leading Solutions has its sights set on at the moment, the consolidation trend looks likely to continue unabated.