The pro AV industry has seen a significant surge in merger and acquisition activity in recent years. A paradigm shift is taking place in how users deploy and use unified communications and collaboration solutions for the workplace. This is supported by the ongoing convergence of voice, video and traditional IT.
The changing industry landscape offers opportunities for all market participants, including manufacturers, distributors and system integrators. These opportunities include the increase in merger and acquisition activity.
The pandemic slowed M&A activity somewhat in 2020. The fragmentation of the ProAV ecosystem combined with long-term projections for industry growth strongly suggests that active M&A trends will persist and are expected to increase in 2021 and beyond. M&A continues to be a tool that enables existing companies to access new vertical and geographic end markets and new technologies while leveraging economies of scale and achieving significant cost efficiencies.
The large ProAV transactions tend to dominate the news, while small and medium-sized businesses make up a significant portion of the action. The ProAV small and medium-sized businesses will no doubt benefit from the ongoing consolidation, either by being the acquisition target of one buyer or by acquiring talent and clients after acquiring another.
Conversely, it is not uncommon for industry consolidation to result in unintended casualties. Entrepreneurs who fail to rise to the challenge by improving their skills, increasing sales with managed services, or anticipating disruptive change are likely to see themselves from the outside in.
To understand how you can benefit from the increased M&A activity, owners need to understand the factors that are really driving them. What about the ProAV industry, which is attracting investment funds and driving transactional activity?
There is 3 core principles that have driven mergers and acquisitions in the ProAV sector to new heights:
1. Economic globalization – is the acceleration of the movement and exchange of people, goods, services, capital and technology around the world. The world is getting smaller and the need for communication and collaboration has grown exponentially over the past twenty years. As more parts of the world develop, emerging economies will open up new economic opportunities and promote the need for improved communication and collaboration.
2. Rapid development of AV technologies – is largely a response to support for the trend of economic globalization. Flat screens came onto the market around the turn of the century, with touch panels becoming more and more popular. The migration from analog to digital; The company-wide use of computers and the significant expansion of the use of network and collaboration technologies have opened up significant opportunities for ProAV and at the same time increased the complexity of the solution.
3. Increased convergence of AV and IT – This transition has been going on for a while, but we only recently saw its impact on M&A activity. With increasingly complex, integrated AV and collaboration solutions, the importance of IT know-how is more pronounced today than ever before.
How can these three basic principles be implemented in M&A activities?
They have all created a desire on the part of commercial integrators to grow in size and scale, and that growth has been largely achieved through mergers and acquisitions.
Globalization of the economy created the need for the implementation and ubiquitous use of AV and collaboration technologies on a national and global level. The ability to efficiently serve a client’s needs in New York City, Tokyo, and Tel Aviv requires the organizational scale most commonly achieved through mergers and acquisitions. Using professional alliances and networks like PSNI and Global Presence Alliance has certainly helped integrators serve clients internationally.
However, M&A has been the primary tool that integrators have used to build and grow their global presence. US-based integrators such as Diversified and AVI-SPL, as well as UK-based integrator Kinly, have used all acquisitions to drive economies of scale worldwide. And you are not alone. Integrators in Europe and the Pacific region use acquisitions to gain access to growing foreign markets, including here in the US.
The rapid development of AV technologies has also led to increased M&A activity. The resulting acceleration in technology update rates, caused in part by the emergence of new and improved communication and collaboration technologies, has taken the industry to new heights. Employers see the implementation and use of the latest technologies not only as a means to attract and retain talent, but also to achieve efficiency and productivity gains.
The Pro AV market is growing faster today than ever before – this has attracted significant amounts of institutional private equity capital to fuel industry growth by building and growing successful businesses. The first acquisition is the “platform” company.
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Initial platform acquisitions often lead to additional acquisitions free of charge in order to achieve continuous growth in value and drive long-term growth. This is the foundation of the private equity model and the pro AV industry will benefit from it in the long run.
Other driving M&A activities are the convergence of AV and IT. As technology implementations move from traditional “hang and bang” projects to complex enterprise-wide unified communication and collaboration solutions and complex digital signage integrations, the need for sophisticated technical skills has never been more important.
Not only is it important to understand the emerging technologies and proactively adapt them to customer needs, but the ability to develop, integrate and deploy these technologies has become vital.
Additionally, the use of complex AV technologies outside of traditional corporate or corporate divisions in markets such as healthcare, aerospace, and defense has increased the need for advanced integration skills.
To meet this need, Pro AV solution providers are leveraging mergers and acquisitions to attract sophisticated AV and IT talent while expanding and expanding the scope of their product and service offerings. The connection between AV and IT has never been so convincing (and necessary)!
How can business owners and AV professionals benefit from this M&A activity? There are four main approaches to taking advantage of the trend:
With activity on the rise, now may be a good time to explore acquisition opportunities to grow your business. Are there opportunities for geographic expansion? Maybe in a neighboring city or state? Does your strategic plan include diversification into another end market? Your company may currently be focused on corporate and corporate customers. If you make more contact with authorities or universities, you can apply your AV core competencies in a different industry and develop further diversification.
Would your organization and / or your customer base benefit from an expansion of your service offering? Maybe your customer base needs unified communications or digital signage? Are there any other products or services that you could pass on to your customer base? The answers to these strategic questions could possibly include M&A.
If acquiring another business is not in your vision, it can mean fertile talent and customer acquisition resources for your company to be opportunistic and watch other companies consolidate.
This is often an overlooked by-product of mergers and acquisitions. While most acquisitions tend to create new growth opportunities for the employees of an acquired company, consolidation can lead to job losses, especially if companies try to team up to reduce fixed and administrative costs and benefit from synergies. While job loss is uncomfortable, talented employees often find a home in other organizations.
From a business owner’s perspective, identifying talent that becomes available as a result of an acquisition can be a great way to fill open positions or find a strategic employee who can open the door to new customer relationships or teach you technical skills that can otherwise be difficult to find find his.
While most properly executed M&A transactions won’t result in significant customer churn, it’s not uncommon for customers to worry about how a transaction might affect their end-user experience and cause them to look for competitive alternatives. After a transaction, merged companies can focus on quickly leveraging synergies and avoiding major integration disasters, while losing sight of customers at a time when they are most likely to be on bail.
If you are attentive and opportunistic after an industry acquisition, new, potentially unexpected, business development opportunities may arise.
Sale of business
Finally, but perhaps most importantly, the rise in mergers and acquisitions in the industry offers business owners an opportunity to finally consider selling their own business. With over $ 600 billion in institutional private equity on the sidelines, combined with historically low interest rates and an active funding market, there has never been a better time for entrepreneurs to consider selling.
Similarly, strategic buyers with strong balance sheets will continue to acquire acquisitions as they seek to increase sales, profitability and capabilities through acquisitions. This desire to expand into a growing market is characterized by buyers who pay a higher multiple than in previous years.
Industry consolidation and M&A are mostly positive trends with the right perspective and outlook. Opportunities to drive growth and expansion are available if you know where to find them. We are very confident that the deals will continue to be strong in 2021, and we expect the competition for quality Pro AV companies to increase among potential buyers, giving all players in the industry the opportunity to thrive and succeed!