The VAR economy: Reseller consolidation continues
I don’t write about resellers enough — they are a vitally important part of many users’ PLMish experiences, bringing specialized add-ons, training, and other services to make sense of the (sometimes challenging) out-of-the-box capabilities of the products they buy.
Resellers are that intermediate layer, between the developer of a software toolset who’s worried about operating systems and communications protocols and programming languages — and the user who typically could care less about that stuff and just needs to make an assembly work.
Back in the day, the industry analyst firm I worked for, Daratech, published a sort-of annual report on VARs. We surveyed a bunch of companies, aggregated their results, and then summarized them in a report. I don’t have one for reference, but I do remember very clearly: it’s a tough, tough business, squeezed from one end by vendors who want to retain as much profit as possible, and from the other by customers who can only pay so much. Back then VARs were more resellers than value-added service providers; today, the services component is often the main part of their offer. And not all VARs are/were interested in that services business. It’s riskier, in that expensive service providers have to be paid whether there’s custom or not; training and other services have to be developed and/or customized from OEM (vendor) offerings … That and more caused a lot of resellers to exit the business –either by shutting down or by consolidating– and very few new ones enter the fray.
Last week we learned that Addnode acquired Microdesk to create the largest single Autodesk partner in the world, Symetri. Addnode also acquired DESYS, a German Dassault Systèmes partner, which will join TECHNIA, Addnode’s Product Lifecycle Management Division. Consolidation.
But once again, who? Addnode Group is a holding company based in Sweden; it has hoovered up more than 70 companies since it started on its growth-by-acquisition strategy in 2003. (And the company invites you to contact it if you think your business is a good fit with Addnode.) In its most recent annual report, Addnode writes that “Acquisitions are an important part of our growth strategy … We acquired four companies in 2021 with total yearly net sales of some SEK 220 m [about $US 22 million] … We still see great potential for value-creating acquisitions in 2022.” Those 2021 acquisitions were S-GROUP Solutions (an ESRI –GIS– partner), Elpool (which I think makes power utility solutions), Procad (the Irish Autodesk reseller), and Budsoft (a Polish company that offers services for Dassault Systèmes simulation solutions).
Addnode CEO Johan Andersson said, “Symetri [the Autodesk reseller brand] has successfully grown organically and by acquiring and integrating other Autodesk partners, to become the number one Autodesk partner in the Nordic and UK markets, with a strong portfolio of proprietary software and related services. Through the acquisition of Microdesk we will now have a strong organisation also in the US”.
About DESYS: Magnus Falkman, the CEO of TECHNIA [Addnode’s DS-specific umbrella brand], said “joining forces with DESYS enables us to build even further upon this position. Our joint customer base will now have access to an even broader mission critical know-how in simulation and other key domains, increased delivery- and service capacity and a greater range of complementary software solutions.”
Addnode is publicly traded in Sweden, so we have some transaction details: Addnode will pay a fixed price of $26 million for Microdesk, with the potential for an additional $24 million that is “contingent on future financial performance” [I added the quotes because we don’t have details on what those contingencies are.] We do not have similar info about the DESYS transaction but may learn more when Addnode next announced results.
Addnode’s bet is that a bigger footprint will enable it to sell to more buyers and to offer them expertise that the individual entities might not have been able to support.
Then just yesterday we learned that Graitec is buying Applied Software. GRAITEC develops BIM solutions that complement Autodesk’s offerings, and is an Autodesk Partner in Europe and North America. Applied Software is also an Autodesk Partner –according to the announcement, one of the largest in North America– and also brings (Nemetschek’s) Bluebeam to the portfolio. After the acquisition, Graitec says its business will be “located 45% in North America and 55% in Europe”. Transaction details were not disclosed.
The companies say that “[t]ogether, Graitec and Applied Software aim to deliver more value to their customers combining their strong Autodesk expertise and the benefits of the Graitec software. Developed by more than 150 R&D engineers, Graitec software aims to complete the Autodesk ecosystem, especially for Architects, Structural Engineers and Steel and Rebar Manufacturers. One point of focus will be PowerPack – an innovative and result based set of productivity tools allowing customers to maximize their use of Revit, Advance Steel, Inventor and Vault.”
This one is a combination that aims to sell to more clients, yes, but also to cross-sell add-on solutions they might not otherwise be aware of.
I focus a lot on the acquisitions the vendors are making –and that’s crucial to users’ ability to expand what they do with these technologies– but the VAR consolidation is just as important. Scale matters, as PLMish buyers are more global in their IT strategies and demand local support that fits into a global strategy. The biggest companies are sold to by the vendor, in a direct model, but the tiers below that are often served by large VARs (often called super-VARs) who need to present a coherent impression — one reason for this consolidation.
Too, as PLMish sales shift to more customer self-service in online storefronts, the VAR sales funnel has changed. It used to be that a VAR held open houses, technical days, and other events to showcase the stuff they sold, building interest and (they hoped) eventually closing a sale. No more. If a buyer buys online, that’s done — all that’s left to the VAR now is training, customization and other services, and software add-ons like what Graitec sells. Add in the financial stresses of sales costs upfront but subscription revenue over a long tail, and it’s not surprising that some VARs simply closed shop.
The VARs that chose to continue have completely reinvented themselves, focusing on services and joining forces with others, either formally as in these acquisitions or via specialization and referral networks.
It’s not an easy role but it is vital. The last two years have shown us that our businesses need to be more agile, that we need to figure out how to do more remotely, to collaborate globally with suppliers and partners. All of that could be addressed by listening to webinars, attending virtual user conferences, reading vendor articles and blogs, and so on — or you could call your neighborhood VAR. Odds are, they know how to help.
CAD vendors are usually allergic to sharing CAD dealers. I wonder how Addnode is being allowed by Autodesk and Dassault to own dealer chains that compete with each other.
Hi, Ralph — great question. Let me see if I can find an answer!
Yes, this is a trend I have followed for a while, giving Addnode a shout-out each year for their southward expansion in Europe (and growth of course).
Related to this are CAM ISVs buying their channel partners.
And a lot of M&A in the PLM Economy overall in 2021. (Our PLM Economy definition includes ISVs, SI/Reseller/VARs, with a splash of various types of investment firms).
Great points – thanks, Stan!
Great coverage on an vital middle layer of sales that is at best neglected, and at worst, targeted for elimination.