IT Value Added Resellers Upgrading Capabilities

Avnet, Inc. announced last week that it acquired ExitCertified, a certified provider of IT training for leading technology platforms including Amazon Web Services, Oracle, SAP, and Symantec, to name a few.  Commonly known as an IT hardware value added reseller (“VAR”), Avnet’s recent acquisition reinforces our view that VARs are actively seeking opportunities to acquire higher valued IT services companies.  Other notable transactions include CDW acquiring Kelway Limited four months ago, and Arrow Electronics acquiring immixGroup in early 2015. 

Reselling IT hardware is a cut throat business with most VARs producing gross margins in the low teens.  Acquiring complimentary high-end capabilities is a logical path to standing out in the crowd and improving profit margins.  Our market intelligence indicates that VARs are particularly attracted to acquisition targets with deep industry expertise, which we believe is an effective go-to-market strategy for IT consultancies.  In addition to vertical focus, IT service providers that deliver projects requiring additional IT hardware are highly desired.  While we don’t expect IT VARs to make major moves to become the next Accenture, we do expect to see more tuck-in acquisitions of specialized IT consultancies in 2016.