Toronto-based services-centric solution provider Quartet Service has purchased hardware-focused VAR KLM Solutions, the companies announced Monday.
Quartet president and CEO Rob Bracey said the deal makes a lot of sense for both parties – while KLM has focused on hardware, his own business has focused on services to the point where it was not making hardware a profitable business.
“We’ve been underselling like crazy,” said Bracey in his typically matter-of-fact style.
And while a letter to the companies’ customers described the deal as “a marriage made in the cloud,” one could just as easily call the deal a match made at the VentureTech Network.
Bracey, current co-president of VTN, is also a member of the VTN Masterminds group – a C-level peer group within the reseller peer group. And it was in those quarterly Mastermind meetings, listening to the reports of his fellow members, that he came to realize that if done right, and done in concert with services, hardware could be much more profitable than it previously had been for Quartet. In fact, he said the company is getting “just more than half” of the best practice total margins available on hardware.
“Part of that is because we were buying stupidly, but also because we weren’t using the vendor programs. Between getting substantially higher volume and more knowledge in working with the vendors, we suspect our total margins will be considerably higher on hardware [with KLM,]” Bracey said. “I don’t think I would have realized that if it weren’t for Mastermind.”
The challenge was that historically, Quartet had essentially put up with doing hardware to facilitate services – and Bracey realized the company would have to change the way it thought about hardware to maximize the opportunity. What better way to do that than to come together with a hardware-focused VAR. The goal, Bracey said, to create a more “balanced service provider” business for the combined entity.
“We were struggling with crappy up-front margins and not getting any support from the vendors,” Bracey said. “As a stand-alone business, [hardware is] not viable. But as part of an integrated solution, it’s imperative. We’d always used services to pull through hardware, but I think it can work going the other way too.”
And that’s where VentureTech comes into the story again. Bracey said he’d been in discussions with KLM president Kent Leckie through VTN over a number of years, and has come to like Leckie, the way he runs the KLM business, and the culture they’ve created.
It’s that cultural match, Bracey said, that makes the organizations very compatible. And it’s a big factor in overcoming its prior major experience in acquisitions, picking up the consulting group of the failing NexInnovations in what Bracey most kindly described as “a colossal disaster.”
“Our cultures didn’t match and they never came close to their numbers,” he said of that experience. “They just weren’t our cup of tea.”
But Bracey is not concerned with the cultural fit of KLM, having come to know the organizations through “years of informal discussions” at community events.
“I like the way they do business, and I wouldn’t have known that if I weren’t in VTN,” he said.
While KLM is focused on hardware, the services they do offer, primarily in integration, are complementary to Quartet’s own, Bracey said. And as much as he sees an opportunity in offering hardware to Quartet customers, there’s an equal opportunity in introducing services-led solutions like Quartet’s virtual private cloud offering to KLM customers.
And, perhaps, the deal underscores what Bracey sees as a growing imperative leading to channel consolidation – the desire on the vendors’ parts to throw more of their support behind a more core group of solution providers.
“Vendors seem to be focusing their efforts on fewer and fewer partners,” Bracey said. “That’s the feeling I’m getting.”
The merger is expected to close in the next two weeks, and Bracey said Quartet’s team will grow into the mid-sixties with the addition of nine people from KLM. After the combination, Leckie will head up business development for the combined company.
“He told me it will be great to be able to concentrate on one thing for once,” said Bracey, who as an owner/operator himself can likely relate.
The company will be keeping KLM’s main office in Toronto’s west end, which will continue to serve as the staging and configuration area for the hardware business.