TK: Your acquisition was one of several major deals this year. What’s driving M&A?
JPC: There’s a lot of investment money that’s been sitting on the sidelines for years, and they’re now looking to put it into companies. That’s been going on for at least two years. That’s positive for the buy side. The negative side is that the shine in the unified communications (UC) space is a little off because of the video numbers going down and the struggles of that piece, which was always the driving force for at least 10 years: “Video is hitting its stride! UC blah blah blah!” What was once a hot sector and glamorous, the shine is of off of it. What you’re going to see is over the next few years, the money is going to start to come into this marketplace from all of the work that’s being done now and all of the people that are implementing. The hype curve will come right back up, but there will be money behind it instead of projections of money. This is a great time for M&A in this space because it’s when you’ll probably get the best prices.
TK: That shine drove a few major deals, such as Avaya’s 2012 acquisition of Radvision.
JPC: Exactly. You see a lot of different buys that were going on, [such as] AVI-SPL’s purchase by Silver Lake [and] if you go back even further, Tandberg being bought by Cisco. The excitement around video coming into its own and the hype around that drove a lot of M&A.
TK: On the integrator side, the big driver seems to be owner-founders approaching retirement age and thus being interested in selling out.
JPC: Absolutely. That always churns the marketplace over. It’s very fragmented, obviously, other than a few big players. So there’s a lot of opportunity for people to purchase those types of companies. Those are harder, though. The role of the integrator is very different from territory to territory, so it makes it very hard when they roll these places up to have one model that works. There’s some economies of scale by rolling up two, three, our, five, 10 of them. The problem is that the way they operate in their territories, I don’t think you’re getting the same combination to save money. I think that’s one of the reasons why you see the ones that have gone belly up. They weren’t able to optimize their operations to the point that they could be better as a whole than the individual pieces. That’s just from the manufacturer side of how I see sales and how I see our products being installed in different regions. I definitely see a lot of differences in how each integrator thinks and how one guy can be successful thinking one way in one territory, and that model just doesn’t work in another territory.
TK: When the Yamaha deal was coming together, how important was it that Revolabs be a subsidiary rather than being swallowed up?
JPC: That didn’t have a lot of reference on the deal itself at the end of the day. It’s a really good thing for myself and the management team because we’re continuing on in what we thought was a good road map and a lot of excitement that we already had within that. But ultimately it didn’t affect the deal.
TK: I suppose that sometimes the decision comes down to which company has the stronger brand.
JPC: Tandberg had a very strong brand, and Cisco slowly made the “Cisco” bigger and the “Tandberg” smaller until it just evaporated. It depends on who’s buying and how strong their brand is and they ultimately believe is important. Luckily for us, our brand name is very important to Yamaha. The Yamaha brand is very strong to begin with, but they’re interested that we have a very strong brand name within the marketplace we operate in.
TK: Sometimes one merger can have a ripple effect, including triggering others. An example is when a vendor loses an OEM deal because the company it was selling to has been acquired.
JPC: Larger competitors that had an advantage just because of their scale, that has disappeared now that we’re part of Yamaha. But I don’t think you’re going to see any of our competitors feeling the need they have to sell themselves now because we were acquire.”
Tim covers the M&A trend in AV in a detailed article in InAVate’s October issue. To sign up to receive this issue, future issues and access to the InAVate Digital Archive register for free here.