The shape of the market for accounting software resellers has shifted dramatically in the past two months, with two of the largest VARS suddenly outstripping the rest of the pack. But VAR roll-ups have not done well before. Why should this time be different?

In July, ePartners, which once had visions of hitting $100 million in annual sales, acquired EYT, a Chantilly, Va.-based company, a move that reportedly pushed ePartners to about $74 million a year. This week, Tectura, which had recently boosted its revenue with the purchase of Cosmo Consult, a German firm with about $26 million in revenue, acquired Aston Business Solutions to leap up to a run rate of more than $160 million a year, according to CEO Terry Petrzelka.

To gauge the shift, note that ePartners had about $63 million in revenue in 2003, while Tectura had $37.5 million. The next largest reseller last year was RSM McGladrey with about $40 million.

Things have changed.

EPartners came onto the scene with rapid growth, but stalled during the tough market of 2002 and 2003. It reportedly has become profitable, as had EYT, But its hopes to enrich the VARs it purchased never materialized. Other reselling roll-ups, which were the rage at the same time consolidators were buying CPA firms, did not materialize.

The most notable thing about the big firms is that they sell Microsoft products. EPartners dropped Best Software this year to focus solely on software from Microsoft Business Solutions. Tectura was overwhelmingly a Microsoft shop.

Why hasn’t anyone been able to put together a roll-up of Best VARs? One observer suggested that investors are betting on Microsoft. Still with MBS at $676 million in sales for the year ended in June, and Best’s parent Sage having topped $1 billion annually, the two companies are in the same ballpark. Of course there’s that mammoth parent behind MBS.

Can large VARs operate profitably? Aston had struggled and EYT, like ePartners, had reportedly fought its way back to a profit, but probably not a big, bottom line. The other large reseller, Columbus IT Partner, another Danish operation, is also for sale.

Some think that VARs really can’t realize great efficiencies when they combine. Petrzelka disagrees, as apparently does Howard Diamond, new chairman of ePartners, who has brought new money into that company.

Can the small VARs compete? MBS clearly thinks so—at least it continues to recruit small VARs and insists they have a place in the market. But you have to wonder if they are going to find very aggressive competition from the giants showing up on their doorstep.

It has to be assumed that we’ll see the real score when these companies file for a public offering. It’s hard to believe that they can repay the venture funds any other way.

And it’s hard to believe that they plan to stop growing anytime soon.

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