Channel Transformation to Drive Acquisition Wave

By Michael Vizard  |  Posted 2016-05-24 Email Print this article Print
 
 
 
 
 
 
 
channel M&As

NEWS ANALYSIS: Changes in how companies consume IT are bringing about a transition in how solution providers are valued. This channel trend will spur growth in M&As.

As the way organizations consume IT continues to evolve, a subtle change in how solution providers are perceived and valued is expected to drive a channel transformation that will bring about a new wave of mergers and acquisitions (M&As).

The main impetus behind this budding channel trend is that end customers are increasingly tying the IT services they consume to specific business outcomes. Instead of paying for a technology service, business leaders are insisting that IT solution providers address a business process in its entirety, rather than simply delivering, for example, an isolated managed IT service.

As a result, control over IT spending is now often evenly split between internal IT organizations and the line of business (LOB). That is driving solution providers to seek deeper relationships with the executives that manage those business units.

The need to accomplish that goal is one of the primary reasons NTT Data agreed to acquire Dell Services, formerly Perot Systems. The business process outsourcing services provided by Dell Services will be a natural complement to the IT services that already exist in an NTT Data portfolio that includes solution providers, such as Dimension Data, said Tanvir Khan, vice president and global head for Dell Business Process Outsourcing.

"Our focus has always been on outsourcing the entire business process," Khan said. "We think there's actually very little overlap between us and the rest of the technical services that NTT Data currently provides."

Along similar lines, Hewlett Packard Enterprise (HPE) announced this week that it is spinning out its Enterprise Services Division. The group will then become part of a new entity being created by the merger of that unit and CSC. The HPE Enterprise Services Group within HPE historically focused mainly on business process outsourcing projects.

Also looking to bolster its presence with LOB executives is IBM, which plans to acquire Bluewolf Group, an IT service provider specializing in CRM applications delivered as a service by Salesforce. Bluewolf will become part of an Interactive Experience (iX) practice within IBM Global Business Services that focuses on helping users develop customer experiences.

"IBM iX functions as a digital agency," said Matt Candy, vice president and European Leader for iX at IBM. "We think Salesforce is one of the top technology platforms being used to drive new customer engagement experiences.

In these three cases, the driving force behind the channel trend toward mergers is an ability to deliver IT solutions that are tied to a specific business outcome. The deals involve solution providers with deep ties to LOB executives.  

Mergers and acquisitions in the IT services arena have been robust in recent quarters. A recent report from PwC said M&As in the IT services space generated $17.3 billion in deal volume in the first quarter. "IT Services deals continued their bull run in the kickoff to 2016 with 5 transactions over $1 billion," the report read.

Channel Transformation: Stronger Ties to LOB Execs

How extensive is this channel transformation? It's only a matter of time before this merger activity plays out across the channel, with solution providers that have relationships with LOB executives being the most sought after.

In fact, Stacy Nethercoat, vice president of TDCloud for the Americas at Tech Data, noted that this change in the way IT is being acquired is part of a much larger shift to consumption economics, in which there is a tight relationship between the available budget and the actual use of a service that is being enabled in the IT sector by the rise of cloud computing.

"Consumption economics by definition is outcome-based," Nethercoat said. "That means there needs to be more reliance on services."

 
 
 
 
 
 
 
 
 
 

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