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? Hafeez Khawaja, HK Consulting.
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By  Piers Ford Published  January 14, 2010 Channel Middle East Logo

"Driven by cost reduction, margin erosion and competition, I expect many small players in the channel business to enter into necessary, if not vital, M&As," he says.

"The large traditional retail channel will slowly disengage or reduce its exposure to the retail market by diversifying its portfolio and expanding in new geographies."

Hafeez Khawaja agrees that 2010 will see at least the beginning of channel consolidation. "Those companies who want to enhance their product portfolio or channel portfolio will look for those who have an incremental customer base in one area - retail, reseller or enterprise, for example," he predicts.

"I think the channel should not look at it negatively, if someone is interested in their business. It is a positive sign that they have managed well, and together in a bigger structure they can meet the new challenges of the 21st century. A good opportunity not properly evaluated and cached is lost for ever!"

Aptec's Baghadi thinks that several distributors could put themselves on the market in the coming year, as cash shortages and the declining market sector take their toll. He also says the channel's perceived lack of transparency still needs to be addressed.

"I see this as a major issue, as it substantially increases the cost of due diligence," he says. "Moreover, it generally implies that international accounting standards and governance are not in the culture of many companies. This reduces the confidence of larger and more established entities."

For those channel businesses who are prepared to take the M&A plunge, Baghdadi has some strong advice: make sure there is a strategic fit between both companies, and plan and tackle the merger of both your company cultures from the very start. "And protect your key staff," he counsels. "They are your most important asset and they will leave if they are fearful of what the future may bring."

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