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? Samer Karawi, G&K Consulting. (Jovana Obradovic/ITP Images)
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By  Piers Ford Published  January 14, 2010 Channel Middle East Logo

Itani is unequivocal. Vendors should not interfere in channel consolidation, he says. Others say that they can have an impact, albeit indirectly, through management of credit lines.

Ali Baghdadi, CEO and president at IT distribution house Aptec, which is something of an M&A veteran in the region since its acquisition of Tech Data Middle East in 2007, suggests that better-than-expected distributor profits in the recession have kept vendor influence at bay to date.

"I believe the key driver to consolidation is going to be vendor credit," he says. "Most suppliers have become stricter with credit, and credit insurance companies have reduced their cover on most countries in the Middle East. Financially weaker companies will lose credit lines, while strong ones will at least stay. While I would have expected some vendors to increase the number of their partners or distributors, most have started to rationalise the number. The vendor is mostly interested in supporting the profitable companies and making them more profitable at this stage."

Samer Karawi says vendors' portfolio enrichments and consolidation like Sun's merger with Oracle, or HP's acquisition of 3Com, will in turn drive some level of consolidation in the channel - although previous history suggests that they tend to let the channel make its own adjustments rather than actively driving M&A.

"I would expect this to happen again and would advise the channel not to wait for the vendor's intervention," he says. "Alternatively, the channel needs to become proactive, read the market and trends, and anticipate the next move instead of waiting for the vendor's help or the market to decide on their behalf."

Karawi says margin pressure will also be a factor in channel consolidation. Ever more exacting customers and fierce competition, the arrival of hypermarkets and the fixing of end-user prices all pose considerable challenges for smaller players in particular.

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