Channel should be worried about increase in private investment

Increasing in private investment might be putting the channel at risk, according to analyst outfit  Canalys.

The IT industry has seen a surge in private equity (PE) investment of late. Traditionally a source of funding for start-ups, larger vendors such as LogMeIn, McAfee, Sophos, Veeam and Veritas have all benefited from PE funding over the last year.

But Canalys thinks this is a bad thing saying that the continued investment by private equity firms in technology vendors is a lit fuse which is designed to ignite value (and return) for shareholders, but which often ignores the long-term value brought by the channel.

Investment houses, even ones specialising in technology portfolios, can view the value of these vendors as binary and react adversely to short-term shocks.

Canalys contends that private investors see vendors in parts rather than something that’s value is greater than the sum of its components. It added that there was a risk of breaking up those businesses and selling them off or divesting elements to third parties – as in the case of Symantec selling its security services arm to Accenture.

Robin Ody, channel analyst at Canalys, said private equity sees certain things as being valuable and some have a better idea of how to use that value than others. Some companies are acting like PE investors, like Broadcom with Symantec.

Ody said this situation is  different to experienced PE technology investors such as Insight Partners, Thoma Bravo, Vista Equity Partners or Summit Partners, which have years of knowledge and experience in investing in tech companies.

However, problems can arise over whether the PE firm sees the channel as being of value. For example, the channel today is encouraged to deliver their own services and focus less on resale. These services might not be apparent on the balance sheet of the vendor, he said.