Commercial Integrator Announces the Integrator of the Year

“Multiply that out by the number of customers we work with and it’s a lot of revenue.

“We’re dealing with a lot of global organizations who have quick turnarounds so it can get pretty intense. We built a strong team of project managers and engineers and we certainly wouldn’t have seen as much incremental business as we’re seeing today without that,” he says.

“You can’t be a billion-dollar systems integrator and just sell AV or broadcast,” says D’Alessandro.

“If we just hit [$1 billion in revenue] and we’re second or third on winning the projects we want to do, that wouldn’t make me happy. The strategy is to have our solutions and innovate to meet the needs of our customers. We need to work with customers who value what we offer. We’re looking for partnership, not just a vendor-client relationship. If we make our clients successful, we grow together.”

How the AV Industry Got Here

Ari Fuchs, director of The DAK Group, says the combination of $1 trillion in corporate cash “looking for investment opportunities,” low interest rates and motivated buyers and sellers has driven the eye-popping recent growth in the AV industry.

“In addition to the rapid change in technology, this is an industry where there are a lot of integrators who don’t have IT expertise,” says Fuchs.

“In a lot of ways, they’re less sophisticated and can’t compete for some of that more complex business. It’s difficult for a lot of them to move beyond the so-called ‘hangs-and-bangs.’

“AV over IP requires a substantial upgrade in experience. You need to have both AV and IT to be a true success,” says Fuchs.

NSCA executive director Chuck Wilson sees divergent paths, with so-called mega-integrators going down one road and the small integrators “whose sweet spot is projects the mega-integrators ignore” taking the other road.

Verne Harnish, author of “Scaling Up,” will address this topic at the 2018 NSCA Business and Leadership Conference.

“We’ve got a David and Goliath story, with a whole lot of Davids and a few Goliaths,” says Wilson. “What’s the landscape going to look like three years from now? I don’t see it slowing down at all.”

Outside investments in the integration space “makes sense,” says Wilson. “They’ve seen success in our industry.” Also playing a role is the increased importance of AV over IP, intelligent building and building automation, he says

“The more our stuff touches the network, the more appeal we’ll have with the investment community. We’re now a source of profitability for them,” he says.

Integrator of the Year ‘Pick’ a Sign of AV Industry Health?

Sean Wargo, senior director of market intelligence for the Audiovisual and Integrated Experience Association (AVIXA), says the trend toward mega-integrators “highlights a strong message of health for the AV industry.”

There’s a natural business cycle that takes a company from small to growing to one that needs help to grow even larger, he says.

“More and more big corporations are going global and they’re seeking companies to help them with their buildouts,” says Wargo.

“That requires capital or partnering or an M&A.” The active systems integrator market is “very cyclical” and something that’s “probably been brewing for a couple of years.”

Wilson sees outside capital as one driver for the breakneck pace of growth, with trouble finding more talented people as another and the third being the ability to create a national and global delivery system.

Talent acquisition “has become such a frustrating thing,” says Wilson. “People are looking now to acquire the people they need through M&A.” As for expanding footprints, “companies believe if they don’t do that, they’ll be eliminated from the pre-qualified list for a lot of clients.”

Wargo isn’t surprised venture capitalists are involved, but doesn’t expect them to stay involved in the space for too long.

“Venture capitalists sniff our opportunities, jump on them and move on,” he says.

“There’s a quick entry and a quick exit. It’s usually a three-to five-year window and they’re looking for a 5x multiple on their investments. They make a living out of identifying areas for investment, with the appropriate levels of due diligence and a planned exit strategy.

“It’s a great PR moment for our industry and it tells you there’s something here. The AV industry is in the early stage of adapting to venture capitalists coming in and now we’re awake to the opportunity and it tells you there are strong opportunities for investment here,” says Wargo.

AV systems integration has become more appealing to outside investors—who are looking to add scale, return on investment and profit—because of the growth of Internet of Things, connectivity and a distributed workforce, says Wargo.

“We’re blurring the lines between AV and IT and there’s more complexity to the solution today,” he says. “Those kinds of things provide opportunities to create massive growth.”

The Changing Landscape of the AV Industry

Fuchs clarifies there’s a difference between a company with $1 billion in annual revenue and one that’s actually worth $1 billion, noting “that’s a function of profitability.”

“We have a ways to go until we see one that’s worth $1 billion,” says Fuchs, adding he expects to see a systems integrator hit the billion-dollar revenue mark as soon as 2019.

The AV industry is one where the average owner is about 50 years old, which also creates some opportunities for mergers, acquisitions or partnerships, he says.

Fuchs advises his clients to “run their companies like you’ll own it forever, but be ready to sell tomorrow.”

“The disappointing thing” about the industry’s growth, says Wilson, is “it’s pushing the price out of reach for the next generation of owners.

Family succession continues to be a strong feature in the AV industry, with HB Communications and Verrex among the most prominent family-owned companies in the space.

“It’s important for these family-owned companies to continue to see opportunities to build and create value,” says Fuchs. “At the same time, a lot of them are looking for a partner that can help them juice the growth of the business.”

The continued desire for the apocryphal “one throat to choke” is also a driving force among integrators to ensure their organizations are as complete as possible, whether that means covering all geographies or having expertise in a variety of vertical markets, says Fuchs.

“There’s a preference among customers to have single-source systems integrator providers,” he says.

“That’s created an opportunity for companies with unique expertise in certain verticals. The AV industry is big enough that there’s always some price competition, but it’s a more pleasant experience for the customer when they’re dealing with a single source provider.

“The integration sector has evolved and the refresh cycles have shortened. That creates substantial opportunity. The competition is fierce. When a systems integrator pitches on a large project, that creates a great amount of visibility but it also comes with a fair amount of risk. Large integrators are built to handle that risk,” says Fuchs.