A growing number of solution providers are engaged in mergers and acquisitions, creating stronger organizations well-positioned to win solution sales across wider geographies and deeper into customer accounts. Unlike the forced sellouts during and after the dot-com bust, today's deals tend to be between thriving solution providers looking to optimize growth and value. Their positive results signify rising opportunity for VARs with the right business models, processes and expertise -- whether they engage in mergers and acquisitions (M&As) or not.

In most cases, the mergers and acquisitions are occurring out of a combination of strengths," says Kirk Robinson, VP of channel marketing for Ingram Micro North America. "They are enabling the larger firms to grow strongly across different territories and technology solutions."

Experts point to several factors driving the M&A trend:

• Growth-oriented executives believe they can create scale and efficiency by acquiring complementary firms in different geographies.
• Customers favor VARs who provide more of the total solution, rewarding larger firms with broad and deep solutions expertise. And it can be easier to acquire expertise than to develop it from scratch.
• Perhaps most important, VARs who specialize in advanced technology solutions and managed services are thriving, making this an excellent time to expand for growth or to sell for cash.

"If you start in the pit of despair in 2003, business results have gotten better and better," says Paul Dippell, CEO of solutionprovider advisory firm Service Leadership, which benchmarks VAR results every year. "When owners see a sequential series of improvements, they know they will receive the best value in terms of cashing out."

Harnessing Technology
Maturing technologies and services for managing a VAR's business also encourage consolidation. Professional services automation software, ERP and remote monitoring and management tools, for example, help VARs create repeatable processes, cover broader territories and more easily integrate new firms.

For VARs not in the M&A game, resources such as the Ingram Micro Services Network (IMSN), the Seismic portfolio of managed services, and the VentureTech Network (VTN) can facilitate what Dippell calls "virtual consolidation." Solution providers who leverage them gain some of the scale of larger firms without having to merge or acquire (see below).

Still, indications are that the wave of M&As will continue, presenting VAR owners with tough decisions about how to maximize business value, job satisfaction and personal net worth. The following pages present the varied perspectives of four solution provider firms that are playing this high-stakes game, along with expert advice to help you make the right moves.

NWN: Laser-Focused on Business Growth
If you're thinking of cashing out because your business is distracting you from the condo, the boat or the slopes, you aren't on Mont Phelps' radar screen. Phelps is CEO of NWN, a growth-minded, advanced technology solution provider with branches in New England, New Jersey, North Carolina and Texas. No. 3 on CRN's Fast Growth 100 list, NWN's run rate is in the $200- million range, thanks to successful acquisitions and strong organic growth.

"We focus on building our franchise so we are always bringing more value to the client," says Phelps. "Our strategy is to build a coherent organization that targets the right markets with the right technologies and the right business partners." Resellers in it for the lifestyle need not apply.

NWN, formerly Netivity, made its first acquisition in 2000, "some would say poorly timed," Phelps quips, but the company worked through it and came out stronger as business improved.

During this time NWN honed its focus by concentrating on specific solution "pillars" that support its strategy and help to evaluate potential acquisitions. The company focuses on project-based professional services, managed services and professional IT staffing. Technical pillars include unified communications, information security, data storage and business continuity, and enterprise computing. Lead vendors are Cisco Systems, Hewlett-Packard, EMC and Microsoft.

"First, we're looking for companies with strong management teams and a good culture," Phelps says. "They've got to be profitable and growing. The people there have to want to be part of something bigger. And they must embrace at least part of our business strategy in terms of the pillars."

VAR firms that met these criteria include Woods Network Services, a Cisco Gold partner; Tenafly Online; and three systems integration units of Xcelecom, a subsidiary of UIL Holdings. Phelps credits NWN's success at integrating these acquisitions to careful due diligence and proven technology and processes.

"The key to integration is to make sure you have the right company before you start, not afterward," he says. To coordinate company operations, NWN has brought all of its acquisitions onto a hosted ERP solution that is eminently scalable. A refined portfolio of HR benefits eases the transition for concerned employees. And the management team recognizes that the acquired firms are similar to but different from NWN, and "that's a good thing," says Phelps. "Everyone's driving toward a common strategy, but the metrics are all local. That way, we retain the local commitment to client service that is so crucial to success. Then we drive organization down into the branches to build teams around technologies and competencies for outstanding delivery."

Once firms are integrated, NWN's clients benefit from the cross-pollination inherent in the expanded range of capabilities. As an example, NWN is usually stronger in managed services than new acquisitions, a prime opportunity for the acquired firms to sell new services to their customers. "That's our primary growth strategy," says Phelps. "I don't want to minimize all we spend to acquire new customers, but the strongest growth comes from introducing additional products and services to existing clients."

Clients also benefit from strengths that NWN and its acquired firms have in common. Both may have Cisco or HP expertise, for instance, so the combined organization offers greater technical depth. "It's hard for a regional business to maintain the highest level of consultants and technology experts," says Patrick Kopins, formerly of Xcelecom and now executive VP of NWN. "Our model allows us to scale expertise to all our offices."

That model will continue to grow through more acquisitions, if Phelps has his way. "This is a promising business that can continue to expand," he says, "and will do so as the right opportunities present themselves."

NetTeks: First a Seller, Then a Buyer
When one door closes, the saying goes, another opens. That's what happened at NetTeks Technology Consultants, where an aborted sale led to a new strategy and a successful acquisition of a complementary VAR firm.

In mid-2006, Boston-based NetTeks seemed to be an ideal acquisition target for NWN (then Netivity). The two firms had worked with each other, and NetTeks shared some of NWN's pillars, such as expertise in Cisco unified communications. Although NetTeks was profitable and growing, it was finding it harder to grow market share within its territory, says Ethan Simmons, one of the founding partners.

"Particularly in Boston, we'd done a good job of winning market share from other resellers," says Simmons, "but now we were big enough to be bumping heads with Cisco Gold partners and other larger firms. To compete with them, and to continue to grow market share, was becoming very expensive."

Considering the synergy of a sale, NetTeks' customers would have benefited from NWN's more mature managed services portfolio. The partners also considered the financial gain from selling, but that wasn't their primary motivation.

The deal fell through. "As we went through the dating ritual and approached the altar, we couldn't agree on a few issues," Simmons says. "The split was amicable; we simply decided not to move forward."

Taking a step back, NetTeks' partners revised their strategy for growth. They first asked the staff to support a three-to-five-year plan for growth via acquisition -- probably a similar firm in a different territory. They also invested heavily in their managed services practice. And they found a company, A&F Networking in Connecticut, with a strong Cisco voice practice, immature managed services, and an owner looking for a change.

NetTeks engaged Service Leadership, an M&A specialist, to help with the acquisition, acquiring A&F in March 2007. After a smooth transition, NetTeks is benefiting from greater scale as a Cisco partner, and new prospects in Connecticut and New York for managed services and other solutions.

"There's something to be said for being satisfied as a $5 million VAR and seeing how much you can drive to the bottom line," says Simmons. "At NetTeks, we decided to grow to $20 million or $25 million to see what we could do from there." With revenues north of $15 million in 2007, NetTeks is making progress toward that goal.

HTS: Steady Vision in America's Heartland
In many respects, Heartland Technology Solutions (HTS) epitomizes the modern, accomplished solution provider. Ranked No. 67 on CRN's 2007 Fast Growth 100 list, $18-million HTS has broad expertise in advanced technologies and vertical markets; a tight solutions focus around Microsoft, HP, SonicWall and 3Com; and a growing managed services business.

What's unusual is that HTS has grown through acquisition to 80 employees working at eight branches in Iowa, Oklahoma, Missouri, Kansas and Nebraska, all tertiary markets in rural mid-America. Building a unified organization across such a wide geography and diverse markets is a testament to HTS' strong management team and steady vision.

HTS was established in 2003 through the merger of SCCI of Harlan, Iowa, and Connecting Point of Joplin, Mo. HTS then acquired Beacon Micro of Ames, Iowa, in 2003. In June 2006, another merger with Business Computer Centers in Wichita, Newton and Hutchinson, Kan., and Connecting Point in Muskogee, Okla., added four additional locations.

"Our mergers and acquisitions have fueled our growth, along with remarkable growth in some of our specialty practices," says Arlin Sorensen, CEO of HTS and founder of SCCI of Harlan. Specializations include education solutions, state and local government, IP telephony and unified communications, IP video surveillance, document management, GPS/precision agriculture and e-marketing services.

The specialty practices have grown strongly from the cross-pollination that occurs when VARs join forces. "In our Iowa location, for instance, we do a lot of precision agriculture for farmers. Now we're starting to move that to other locations," says Jane Cage, COO of HTS and founder of Connecting Point of Joplin. "And our technicians share advanced-technology expertise across different offices."

The combined company also benefits from the influx of executives after an acquisition. "When we had only two locations, it was easy for the managers to deal with a variety of areas," says Cage. "As we've grown, the senior mangers have become more specialized." As an example, Sorensen and Cage split the top management positions, and Kelly Walker from Business Computer Centers has become CFO.

The broad geography and diverse markets create challenges, however, causing HTS to work hard at perfecting its technology and business processes. PSA software and remote monitoring and management, for instance, have improved utilization of technical resources across the large territory, while Microsoft Dynamics software has allowed HTS to better manage the complexity of multiple inventories, multiple locations and departmental P&L tracking.

Though HTS has grown by merging with similar companies, unifying company cultures isn't easy -- especially those with strong traditions and located states apart. Due to cost and time constraints, HTS has only one meeting each year attended by all employees. The company supplements this with weekly newsletters that report on business as well as personal issues.

"Reporters at each location write about personal details such as family vacations and whose daughter plays softball," says Cage, "so that when we work together it's more than just a voice on the phone. It's all about making personal connections to create a unified company spirit."

I.T. Works: Greater Value Across the Board
Before July 2006, I.T. Works and SEE-Comm were both small network integration firms focused on Cisco IP communications, security, Microsoft solutions and managed services. Since then, the two Texas-based firms have merged as I.T. Works with excellent results.

Their specialties and customer sets haven't changed, yet the economies and scale of the merged entity have led to significant growth. Revenue in 2007 is up 20 percent to $9 million, and the bottom line has improved as well.

"When John Powell of I.T. Works first approached me about a possible merger, we both thought that the larger we were, the better off we'd be down the road," says Greg Starr, COO of I.T. Works and formerly of SEE-Comm. "We've found that by saving money through economies and our larger scale, we have more money to invest in developing the business."

Of course, it costs money to bring two firms together, such as investing in operating software to consolidate operations. I.T. Works' accounting package was superior, while SEE-Comm had the better PSA software, so consolidation meant purchasing additional software licenses. Business processes also had to be merged, which meant analyzing which company's practices were best and educating the other on the new direction.

Productivity gains and economies from the merger more than compensated for the expense and disruption. Of particular note were the cost savings related to vendor certifications and specializations from Cisco, Microsoft and others.

"The costs for a smaller company to retain its certifications and specializations year in and year out are astronomical, and many vendors are increasing their requirements, such as preventing the same technician from having different roles in the same certification," says Starr. "Because the practices of our two companies were similar, together we cut those costs in half." Additional cost savings accrued from the merged company's status as a Microsoft Gold partner, which meant that SEE-Comm received at no charge the Microsoft licenses that it had to pay for prior to the merger. The larger scale improved vendor support as well.

Vendor policies on back-end rebates have bolstered I.T. Works' net profits -- a significant perk in light of the low prices that the market dictates. Higher combined revenue levels pushed the merged firm above certain rebate thresholds, adding considerable green to the bottom line.

Combining resources also helped I.T. Works improve its managed services portfolio, difficult to do when the smaller firms were focused on IP telephony project work. In the past year they have simplified their managed ser vices offerings, brought them together and added a dedicated help desk. "We're closing managed services deals every month," says Starr. "It's really building at a good pace."

What's on the horizon for I.T. Works? "The merger has brought us more resources, more stability and higher value as a company," says Starr. "We plan to continue on the current track."

Decisions, Decisions
To help you make the right choices regarding M&A activity for your company, experts offer the following guidelines:

• Know thyself. Before going the M&A route, some soul-searching is in order: "You really need to understand what you want out of the transaction, what the primary objectives are, and stay true to those objectives," says Justin Crotty, VP of services at Ingram Micro North America. "Generally, the key criterion is, does the deal enhance shareholder value?"
• Evaluate value. When considering the value of an M&A target, it's essential to drill down into two factors: the customers and the staff. Loyal customers who view their VAR as a trusted advisor are likely to stay on after a merger or acquisition, and staff expertise creates loyal customers.
• Culture is king. Companies coming together must mesh culturally, or else "it's a train wreck," says Phelps of NWN. "It comes down to sharing the same kind of values, the same business philosophy."
• Take the personality test. Whether you're thinking of buying, selling or merging, ask yourself about your counterpart: Would I be comfortable hiring or going to work for this person?
• Managing the process. M&As can create fear and uncertainty among employees if the word gets out too early. Although it isn't easy, it's best to work out as many details as possible before making the deal public. Careful planning among the principals can also decrease the role and expense of lawyers and accountants, which Starr of I.T. Works calls "the dark side."
• Remember your focus. The key issue driving M&A success is overall synergy. "It's all about staying on focus in areas that we want to be best at," says Kopins of NWN, "and finding a good fit with the operations, the ownership team, a nucleus of good employees and a strong customer base. That eliminates a lot of risk."