Reselling empires do not last

When I look back at this whole On The Go Technologies (OTG) saga I can’t help but think it may have been nothing more than a house of cards.

Stuart Turk, OTG’s founder and CEO, told CDN that he wanted to build an empire strictly on IT. Given the state of business, he has fallen short.

I never did get a sense from Turk what he truly wanted from Infinity Technologies, the reseller he acquired back in 2005. I also never got a clear idea what the Infinity owners, Frank and John Abate, were getting in this OTG deal. There was an OTCBB stock component to the deal that could have made these individuals rich, or richer. That, of course, did not happen.

In hindsight, if you look at Turk’s plan it may have been a case of biting off more than he could chew. Today acquisitions are becoming common place in the channel.

Take a look that the most recent, Nitro Microsystems acquiring OAM Network Solutions, as an example. In that case you have a $30 million VAR acquiring a $10 million solution provider.

Other recently examples include Prosys Tec buying Sona Computer and Insight gobbling-up Software Spectrum.

In all instances you have a bigger company buying a smaller one.

When OTG acquired Infinity you had, at the time, equals merging. The only difference is OTG was listed on the stock market, and Infinity was not.

This isn’t the whale swallowing Jonah and inevitably it led to a culture clash. The Infinity owners, Frank and John Abate, left the operation less than a year after the announcement. Shortly thereafter Randal Kalpin of CompuQuest left.

Now, Turk was forced to sell his operation to FTS Group to avoid bankruptcy. At the time, OTG was on a rapid rate of acquisitions with Infinity, CompuQuest and Helios/Oceanic. And its not that Turk was off base with this strategy.

Peter Hatges, senior vice-president of KPMG Corporate Finance, said that if you are going down the road of mergers and acquisitions the time is now for the channel.

Hatges is a guru at M&A, and he sees a lot of channel consolidation today and in the future. He said the constant pressure from companies and suppliers and vendors to drive costs down, along with more and more customers wanting just one source for all their IT, is putting a lot of pressure on channel partners to merge.

But that does not mean VARs should jump in without looking. Hatges said that during the heat of a merger or acquisition negotion parties lose sight of what the important things are.

And I also wonder if customers are contacted. It is possible they may not like the arrangement, even if you do. Inevitably, customers are key to making any acquisition work in the long run.

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Jim Love, Chief Content Officer, IT World Canada

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Paolo Del Nibletto
Paolo Del Nibletto
Former editor of Computer Dealer News, covering Canada's IT channel community.

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