The facts, the expectations, and the realities of this just announced merger of two anchor players in the AV industry.
We’ve said it before, and we’ll say it again … the AV world is certainly not boring.
Earlier today, the news finally broke that mega-integrators AVI-SPL and Whitlock have announced plans to merge.
Both companies will be held by LA-based Marlin Equity Partners. For those who didn’t catch this earlier, Marlin completed a majority investment in Whitlock in October 2019.
In terms of the overall AV marketplace …
AVI-SPL is the 2nd largest AV integration firm and Whitlock is the 3rd (AVI-SPL was previously the largest but was pushed out of the top spot by Diversified due to its recent acquisitions). The combined firm will include more than 3,000 global staff and is expected to generate over $1.3B in revenue.
The deal is expected to close by the end of Q1 2020, and while many details have yet to be finalized, the word is that the new company will be called AVI-SPL and that AVI-SPL’s CEO, John Zettel, will be the CEO of the new company.
Our Thoughts and Comments
Although we’ve watched these two firms compete for years, we are not terribly surprised by this announcement.
For years, we’ve published and presented on the challenges facing AV channel partners. Severe competition. Declining price points. Ever-simpler system designs. Inability (for many) to differentiate. The list goes on and on. Unfortunately, many resellers / integrators have yet to respond to their new reality, and instead continue to do business as they have for decades.
Some savvy resellers, including AVI-SPL and Whitlock, have taken steps to not only ensure their long-term survival in this fast-changing market, but to allow them to capitalize on new opportunities.
For example, both companies have implemented programs to expand their footprint and address the needs of global customers.
AVI-SPL took the “traditional” route to expanding its global reach, opening offices (or acquiring companies) in Canada, Germany, the UK, and the United Arab Emirates. In addition, AVI-SPL has entered into a variety of partnerships with channel partners around the world.
Whitlock took a different approach to finding and processing non-US business, forming the Global Presence Alliance (the “GPA” – www.global-presence.org), an association of channel partners from more than 30 countries offering a single point of contact for global customers, as well as a centralized help desk and pre-defined meeting room solutions.
Furthermore, both companies have invested in centralized monitoring and management service offerings. AVI-SPL has invested heavily in its Symphony monitoring and management platform, and Whitlock offers enterprise management services leveraging 3rd party vendor platforms (e.g. Crestron Fusion and others).
But life ain’t easy when you’re a big fish in a medium-sized pond. There’s always a bigger fish with more resources (financial, staffing, etc.) looking to steal your customers. In this case, that bigger fish is Diversified.
But a big fish is just one of the dangers. Red tide is also smothering some of the opportunities. In this case, the red tide is manifested by new systems that are so easy to buy and so easy to install that the value add of a reseller is questionable. Click-to-buy is the new great white shark. And, pardon the mixed metaphor, the price points of these systems place them squarely inside the black hole of marketing – not enough margin to justify the sales effort.
Nevertheless, more than ever, the key to winning big AV deals is being in the right place at the right time. Translation – the key to success is having more people working from more offices in more locations closer to more customers.
Knowing both companies as we do, we believe there are many synergistic benefits associated with this merger.
First of all, both AVI-SPL and Whitlock are pure-play AV integrators. Sure – they each offer other services (e.g. Microsoft Teams professional services, onsite staffing, etc.), but the day-to-day business for each of these companies focuses on AV system design, integration, and support. As a result, these firms will enjoy significant benefits by merging their back-end offices, help desks, design teams, sales staff, marketing resources, and more. Standard merger efficiency benefits.
As the vendors gain more power and market presence through acquisition (e.g. Plantronics-Polycom) or through organic expansion (e.g. Zoom), it is not unnatural to see channel consolidation to counter the effects of stronger suppliers. Size meets size.
These two resellers also have similar cultures. Heavily opportunistic. Centralized, yet flexible enough to allow local offices to control much of their business model, approach, etc.
Challenges / Concerns
The most obvious challenge is how to reconcile the non-US interests of the combined organization.
Whitlock is an anchor player in the GPA, owing at least in part to the large size of the US market (Whitlock’s GPA territory) and the many GPA customer projects that include at least some US locations. The question is whether Whitlock can retain its membership in the GPA after the merger. The short answer – maybe, but it would be very difficult. There’s just too much territorial overlap.
To make this work, one of these things would need to happen.
- The GPA would have to ease its core policy of assigning a single member per country. Frankly, we don’t see that happening.
- The GPA would have to remove the members whose territories overlap with AVI-SPL’s international presence. Again, this is not likely.
- The GPA members in the overlapping territories would have to agree to share their coverage areas with AVI-SPL. Not exactly a slam dunk.
- AVI-SPL would have to shut down or sell off its non-US offices, many of which have enjoyed great success. Don’t hold your breath on this one either.
It’s worth pointing out that both parties (AVI-SPL / Whitlock and the GPA) stand to gain from a continuation of this partnership. But it will take serious creativity and compromises on both sides to make this work. I expect there will be some fairly intense meetings on this subject at the ISE event next week.
Side note – given the ongoing consolidation in the AV channel, this probably won’t be the last time that the GPA has to reconcile this type of conflict.
This, of course, leads us to the next question … can the GPA survive without Whitlock? That is a great question.
At its outset a decade ago, the GPA depended heavily on Whitlock for financial support, “borrowed” staff, and even industry validation. At that time, Whitlock was the main driving force behind the organization, and most of the other members followed Whitlock’s lead like planets revolving around the nearest star.
That, however, is no longer the case.
Today, the GPA is a self-governing stand-alone entity owned by its regional shareholders (members), with each contributing time (a lot of time as a matter of fact), money, and resources to support the greater good. In addition, the GPA has its own infrastructure, it’s own staff, a network of vendor partners, and more committees and leadership teams than some organizations 5 times its size.
So can the GPA survive without Whitlock? The answer is … YES. Things will be a bit hectic while the organization finds a US partner to take Whitlock’s place. And some customers will be impacted during the transition. Some may even stop doing business with the GPA and/or AVI-SPL. But the organization will likely live on.
This is a pretty standard Darwinism play. Survival of the fittest, or in this case, the fattest. And it makes sense. Money will be saved. Sales, marketing, and technical teams will be expanded. Leverage will kick in. Overhead will be streamlined. Business will happen.
So we definitely give this deal a thumbs-up.
They will, however, have to reconcile the non-US strategy. And while that happens, things are likely to be … special.