Every so often, the death of the small software reseller is predicted.
We’re not predicting it here. But something different is happening in the current round of consolidation of value-added resellers, the organizations that we have called accounting software resellers. And there is pressure on the smaller players as never before.
The first look at the figures submitted by reselling organizations for the Accounting Technology VAR 100 confirms some of the thoughts that have been circulating as M&A activity picks up. The small, midsize, and big are all getting bigger, that is getting bigger if they want to be serious players.
The VAR 100 is selected by revenue as the only criterion and it was not surprising that the cutoff has risen to about $3.5 million from $3 million last year and is up from about $2 million when this process started.
This reflects trends that affect resellers of all sizes and is creating noticeable growth in the middle of the pack. There aren’t too many VARs leaping to more than $20 million in revenue. But there are many coming together to form organizations with $5 million to $12 million in annual income.
In talking to resellers, one force driving consolidation is resources. Resellers of all sizes are having trouble hiring qualified consultants and in the buy-or-grow decision, buying is often the only way to get more talent. Meanwhile, with product lines growing more complex and customers more demanding, smaller resellers are struggling to sell, install, train, and support clients. You can talk about the ability of larger dealers to spread costs across more revenue. But you can also talk about the smaller VARs being spread too thin trying to keep up.
No, something fundamentally different is happening. Resellers who handle financial applications are being acquired by companies that handle broader technology services and products. Middle-aged entrepreneurs who started when this business was young are weighing their needs. CPA firms that handle software are looking towards hotter markets, such as IT audit and risk management practices that are closer to their core skills.
Things are more different than they have ever been before.
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