Avant bought PlanetOne today. I didn’t see this coming, but from a culture it fits: Beer Pong meets Jaeger machine. The march to Bigness continues.
It leaves just three major independent brokers: TBI, TCG and Sandler. There are also a host of smaller brokers like COLOTRAQ and the members of TSX.
As a partner still feeling the ripple effects of three of my brokers being acquired, I hope the PlanetOne partners don’t have to go through this mess. Yet I am pretty certain they will. This is the first merger for anyone at either company. They have no idea what is coming.
Synergies make these things possible, but that usually means RIF people that are redundant or won’t play ball or are expensive. I figure Ted will be there 12 months (unless the terms state longer).
Scansource released quarterly numbers this week.
Intelisys revenue was $19M for the quarter, $55M for 9 months of fiscal year; compare with 1 year ago it was $16M and $47.7M. That’s about 16% year over year growth for the only public broker (TSB).
[Aside: in the SEC filing for the quarter, with all of the notes, it was a challenge to tell if growth was 15% or 18%.]
Let’s say that Intelisys is below average and the others are doing 25%. I know a few have said 30+% of growth but I find that unlikely as pricing has dropped for network and connectivity as well as for UCaaS. So if prices depress, the number of transactions would need to increase substantially in order for 30% growth.
Let’s say 25% growth in top line. They pay out 80% of that top line. For that $19M for Intelisys this quarter, they keep $3.8M.
What is shocking is that Intelisys “had 2015 gross commissions of $120 million” when it was acquired by ScanSource. In 6 years, it dropped to less than $80M?
Intelisys has over 200 employees on LinkedIn. No idea how many of those are 1099, since a common practice for TSBs is to “Hire” people on as 1099 not W-2. 1099 means as a contractor – and usually that means that a big chunk of the pay is commission. Even marketing people come on as 1099, getting a piece (1-4%) of the MDF from vendors.
The top TSBs make upwards of $3M in MDF**. That money helps to make payroll, rent and events.
At 200 employees making an average of $50K is $10M per year in payroll, not including benefits, bonuses, etc. That is a hefty payroll on $3.8M per quarter!
Back to the growth. Avant said that their organic growth was great but they needed the boost from an acquisition. So that 30% YoY was NOT enough for Pamlico Capital. They needed more lift to get a healthy return on their investment (my guess was $90M for 55% of Avant, but I heard today it was $200M*).
Let’s go back to one more thing: since Intelisys was acquired, their top line decreased!!!
As partners are making M&A decisions, they are not producing for at least 4 months (and as long as 9 months). That isn’t a lift in top line either.
All of this is a march to Bigger, not Better – just Bigger.
These mergers only work with Synergies, which is banker speak for getting rid of people. There will be too many VPs, National This and National That. There will be too many Channel Managers, so people will be let go. This will cause some Partners to go elsewhere because this is a Relationship business.
There was likely an overlap in partners so this isn’t 1+1=3 — but more like 1+1=1.5 because partners don’t want all their eggs in one basket. Also, partners don’t like risk in commissions or hiccups in business. I just don’t know where the safe haven is.
Where does a Partner go to find a commissions safe haven in a broker who is NOT PE owned??
What will be the next deal? My wild card is Bridgepointe and Sandler merge. (5/11/2022)
One partner thinks that Ingram or Tech Data will buy a TSB. TBI is working to put its SKUs into the Ingram database now. Years ago, both XO and Microcorp tried to work with Tech Data but it so much harder than you think. It is so much more than just putting SKUs into the catalogue.
**MDF of $25K x 40 vendors is $1M; but they all have 200+ vendors AND $25K is the minimum. Platinum can be $250K per year.
*** Upstack got $50M plus $100M in debt equity. Bridgepointe got $100M+. Telarus got VC money (guess $50M). Lightyear.ai raised $13M in series A. Bluewave grabbed $75M. AppDirect, parent of AppSmart, raised $465M including $185M for App Invest. Avant $200M. ~$750M so far invested in brokers.
**** Intelisys had $120M in top line revenue and was acquired for $83.6M upfront and earn out of $100M to $150M – max of $233.6M. PlanetOne is around $50-60M in top line, so about $100M for acquisition. Agree?
I stuff a lot of data in these posts.
