He’s not sure how much longer the flurry of acquisitions will last, saying many companies are for sale or considering going up for sale but “the questions is whether the buyers run out.”Zettel believes the advent of so-called mega-integrators “is a benefit to our employees and to our customers.”
AVI-SPL is still actively looking for acquisitions that make sense and fit their philosophy, says Zettel.
Looking ahead to 2020, Wilson sees the AV industry continuing to evolve.
“Looking at the systems integrator ecosystem, we’ll have an integration, design/build and managed services company within the same building,” he says.
“It’s all dictated by the client. It’s one thing to be good at technology, but it’s far more difficult to be profitable.
“This is our new reality. There has to be some point where they hit peak performance and no longer see that open footprint that needs to be filled based on client demand. Bigger can be better, but it isn’t always. If you just acquire and keep spending your operating capital, you’re not able to invest in your existing employees.
“Culture is everything. You have to get that instilled before setting your sights on a new investment,” says Wilson.
Why AV Remains Attractive
The advent of private equity firms investing in systems integrator firms—both AVI-SPL and Diversified are owned by investment companies—has been about three to five years in the making, says Fuchs.
That’s led to a “new growth profile” because the fragmented nature of the AV industry means there’s a chance for private equity companies to “roll up systems integrator businesses into bigger businesses.”
From low-voltage contractors to IT services to mechanical expertise, venture capitalists buyers “are taking notice” of the systems integration ecosystem, says Fuchs.
“It’s somewhat of a herd mentality right now,” he says. “Everyone is thinking about doing something, whether that’s adding a new geography, adding another vertical or increasing in size.”
The Mega-Integrator was a natural byproduct of the evolution of the AV integration space, says Fuchs.
“Integrators need to innovate their service and project offerings. Unless you’re ahead of the curve, it’s more challenging to compete,” he says.
Fuchs sees no end in sight to the flurry of activity in the fractured AV integration market, saying he expects it to be a hive of activity well into 2018. He sees more private equity firms building platforms and adding on to their existing capabilities while more integrators will be acquiring their counterparts.
“The window is certainly open right now,” says Fuchs. “We’ll definitely see more activity in 2018 and into 2019, but there’s some cyclicality to this so it’s tough to tell beyond that. The foundation is there and the interest is there too.”
D’Alessandro agrees that consolidation will continue in the AV integration world for a while.
“If large integrators can perform at the same level they did when they were smaller companies, that puts a lot of pressure on small integrators,” he says. “There always will be and should be competition,and that forces us to also be better.
“We love the customers that have small projects. That’s how this company was built,” adds D’Alessandro. “Those little projects and little companies turn into big projects and big companies.”
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