A bridge too far?

The frenzy of mergers and acquisitions that many commentators predicted the maturing Middle East IT channel would see by now simply hasn’t happened. Piers Ford investigates why not

Tags: Aptec DistributionG&K ConsultingHK ConsultingHP Middle EastMergers and acquisitionsUnited Arab Emirates
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A bridge too far? Ali Baghdadi and Hanspeter Eiselt at the press conference announcing Aptec’s takeover of Tech Data Middle East almost three years ago. (Khatuna Khutsishvili/ITP Images)
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By  Piers Ford Published  January 14, 2010 Channel Middle East Logo

Given this considerable impetus, he agrees that the familial element of so many channel players in the Middle East has provided some understandable restraint.

"The majority of large channel business in the Middle East has traditionally been part of a group or a conglomeration of other businesses owned by a person or a family," he says. "The ICT channel business represents a small fraction of the overall group's business. The decision makers of the group perceive the ICT channel business to be a complementary business that, while it contributes to the bottom line, is still not ‘core'. This doesn't mean that the groups are neglecting their ICT channel arms or overlooking business, it simply means that the need for M&A within this particular business is not perceived as priority."

Also, he explains, the main M&A drivers are often simply not of great enough concern to this type of business, and the likely outcome of a merger may not be tangible enough to justify the investment.

For smaller players, the cost, complexity and risk of M&A is a significant actual and psychological barrier. Many of them, says Karawi, prefer to focus on niche markets where they can enjoy better visibility, higher outcomes and lower risks. And for channel entrepreneurs, creating a new entity to capture new business in a new geography or sector is still seen as easier, faster and more controllable than buying or merging with an existing channel player.

"The cultural differences among the various channels in the region, the structural integration hurdles and the ‘ego factor' are possible explanations as to why the ICT channel M&A rate in the Middle East is lower than the rest of the world," he says.

Karawi points out that talk of a uniform recession in the region isn't necessarily helpful. Some markets have certainly suffered, but others - Qatar, Saudi Arabia, Egypt and Abu Dhabi - have witnessed unprecedented growth. And the Economist Corporate Network Report forecasts growth in the Middle East region to achieve a comparatively (with the rest of the world) favourable 4.4% in 2010.

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