Private equity within the Channel is increasing, especially as more companies look for outside investments to grow and expand their organizations. The B2B technology industry is a prime target for private equity firms and it’s easy to see why when the market is valued at $3.5 trillion. According to Forrester, that figure is only expected to double in terms of GDP from 5% to 10% in the next decade.
Private equity firms can clearly see the value of the Channel, and with the future looking brighter than ever, they are keen to take advantage of the sector while it’s on the rise. However, private equity does not come without its own risks, which is why TBI continues to remain independently owned.
"(Private Equity) Firms have spent $80 billion acquiring companies in the global technology sector this year...That's an all-time high for a quarter and already up 141% on this point in 2020, which went on to be a record year for such deals," – Bloomberg Research
Celebrating 30 years of business and counting, TBI is excited to continue to bring a best-in-class partner experience bolstered by our ability to stay nimble within the Channel and not answer to any shareholders. We believe remaining independent is the best way to ensure the same level of service and value to our partners, providers and employees, while allowing TBI to avoid private equity pitfalls.
Loss of Ownership
One of the biggest drawbacks of accepting private equity is the loss of ownership, which can be anywhere from 30%-70%. This means that organizations’ owners can have a loss of control over their company, which can then create a level of instability within their business.
Uncertainty in the Future of the Company
Whenever a company is bought out, it impacts nearly every facet of the business, from customer experience to internal processes. Private equity focuses on profits, which can come at the expense of both employees and partners, as well as the future of the company. Internally, there can be anxiety about this, as the possibility of staff or financial cutbacks become real. This can then lead to a disruption in operations from trying to consolidate and integrate companies, resulting in business inefficiencies.
Quick Profit is Valued over the Longevity of a Company
Private equity firms are investing in the Channel in hopes of quickly turning a profit. The average time it takes for private equity to flip a company has decreased from 6 years to 4.5 years in the last decade. Private equity firms are not in it for the long haul and are quickly moving on to the next company once they receive profit. This can result in a company’s long-term vision being undermined and unsuccessful.
Impact on Greater Channel
With the increase in mergers and acquisitions in the Channel, both partners and clients are left with slim options for the technology services distributors that they decide to work with. Furthermore, it is investment in product updates, support and account management where private equity often falls short, especially when these elements do not directly add value to their own business. Channel-owned and managed services are not viewed as an asset to the company within a private equity ownership.
All in all, the acceptance of private equity within the Channel risks instability, decreased competition, as well as loss of ownership and a company’s long-term goals. This can then lead to a lower level of service quality provided to partners, as well as far less options for partners to choose from. For these reasons, TBI will remain privately owned, as we believe this is the best way to ensure consistent and quality service to our partners, as well as strengthen our relationship with the Channel. Private equity firms may offer investment, but unlike them, TBI is in it for the long haul.
ABOUT THE AUTHOR
Nefertari Bilal serves as TBI's Content Marketing Specialist. Raised in New York City, Nefertari moved to Chicago to complete her bachelor's degree in journalism at Northwestern University in 2020. An avid and curious writer, Nefertari is passionate about studying complex topics and explaining them in an engaging, impactful way. Her personal motto is, "feel the fear and do it anyway." In her spare time, Nefertari bakes keto treats, creates podcasts and short stories, as well as supports the local theater. You can reach Nefertari at firstname.lastname@example.org or connect on LinkedIn.