"Having the value-added distribution business allowing us to fund these investments is ... a game-changer," one executive said.

James Anderson, Senior News Editor

October 18, 2023

7 Min Read
Superops.AI funding, ScanSource event
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SCANSOURCE CHANNEL CONNECT Members of the ScanSource C-suite say they’re excited to take advantage of free cash flow the company has built through its hardware business to fund organic and inorganic growth in their recurring revenue business.

All five members of ScanSource leadership team sat down with Channel Futures Wednesday afternoon to preview investments the hybrid distributor is making in its business — particularly the profitable Intelisys tech service distributor (TSD) and agency business that ScanSource bought seven years ago. While ScanSource chairman and CEO Mike Baur said his team is still taking a patient approach to identifying a new leader for Intelisys, he said key investors have given the green light for the hybrid distributor to pour new resources into the TSD.

Specifically, chief financial officer Steve Jones said “substantial M&A” is on the table for the Greenville, South Carolina-based company, with a focus on the agency space. ScanSource acquired commissions platform RPM Telco in 2017 and cloud distributor intY in 2019. And now that ScanSource has emerged from the COVID-19 era with a health balance sheet, Jones said the company is ready to shift from “tuck-in” M&A to “more transformative” M&A. And ScanSource’s hardware business is funding those potential deals, he said.

“As we free up our balance sheet, our investors aren’t looking for us to return dividends. That’s not why they’re in the stock. We think there’s some opportunity there to do some bigger transformative things in that recurring space and that higher-margin, lower working capital space,” Jones told Channel Futures.

There are no details beyond that. But Baur did point out inorganic growth that has occurred at Intelisys’ younger rivals in the TSD industry in the last three years.

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ScanSource’s Mike Baur

“We’ve certainly seen that happen from Avant and Telarus and others. They’ve been acquisitive. And we have not, other than Intelisys [in 2016] and RPM. So stay tuned,” Baur told Channel Futures.

Jones emphasized that ScanSource is looking well beyond a three-year outlook.

“We’ve got a strong balance sheet in the Intelisys business. It’s zero-to-negative working capital. It’s a very capital-light business that allows us to then take those funds and invest them in some longer-term things that can pay off for us longer term. Mike reminds everybody; we’re in this for the long haul,” he said.

Taking Feedback and Building Agility

The ScanSource leadership team for several weeks has been meeting with the Intelisys leaders and gathering feedback from employees and partners about the state of the Intelisys business, as Intelisys addresses increased competition in the TSD market and the departure of former president John DeLozier.

The ScanSource committee entails its entire leadership team: Baur, Jones, chief people officer Alex Conde, chief information officer Rachel Hayden and chief legal officer Shana Smith.

Conde, who last year moved over to the United States from ScanSource’s Brazil business, said he has been gathering insights on the Intelisys community as well as the specialty technology segment that Tony Sorrentino leads. That research includes surveys for partners of both sides, as well as employee surveys. Conde said the analysis takes into account the different dynamics in different units under the ScanSource umbrella.

“We’ve been doing engagement surveys for each team so we can understand the different needs from each partner, each customer and each employee,” Conde told Channel Futures.

Moreover, Conde said listening to partners and employees “is always a journey.”

“We need to keep improving. The needs change over time. Doing this, I think we can really improve and listen more to partners and to employees,” he said.

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ScanSource’s Alex Conde

Conde said ScanSource is launching its second employee survey this week. He said the company conducted one back in March and is using cross-function teams to address the areas where the company scored the lowest.  A trend emerging from the surveys, Conde noted, is the need to be agile to respond to a diverse partner base.

“The partners ask for a lot of things at the same time, and to be able to execute that, you really need an agile process and cross-functional teams that can solve the problem,” Conde said.

Baur said he’s excited at the prospect of the different businesses within ScanSource growing more agile and responsive.

“They have their own president [and] functional areas. Then Alex’s team is at the corporate level, and they’re helping advise on, ‘Hey, this is something we’re seeing through the surveys. Do you know that your people need this or maybe we’re not as responsive as we need to be?'”

Baur pointed to the corporate resources that the larger ScanSource umbrella can offer Intelisys employees and partners. That includes 40-some …

… Intelisys-focused employees working under Rachel Hayden’s IT organization, as well as the human resources organization Conde leads.

“They didn’t have any of these programs at Intelisys,” Baur said. “They were a company of 100 people, not a company of 300. All of these TSDs, as they go through this maturation, are going to have the same problems; they just don’t know it yet.”

Baur in his keynote address asked partners to stand up based on how long they had been working with ScanSource. He said he changed his keynote speech the night before because he wanted to tie the idea of partner longevity to the idea of employee longevity.

“Our view is the idea that if our employees stay a long time, that also translates to customers,” he said.

Suppliers and sales partners are watching closely to see whom ScanSource appoints to replace Intelisys president John DeLozier and sales leader Chandler Legaretta. Some of them have shared with Baur their ideas for a successor, he said.

“I have asked partners as they come through here, ‘Hey, do you have any suggestions for me?'” he said.

Baur in a previous Q&A with Channel Futures talked about the pros and cons of hiring internally versus from elsewhere in the channel. But on Wednesday he shared yet another option that one person voiced to him.

“An interesting comment was, ‘Mike, make sure you look outward. This industry is not that unique. There are other industries where you have agents and commissions, and it doesn’t have to be technology. So think about it as a business model. Not so much coming out of telecom.’ I thought, ‘Oh, that’s interesting,'” Baur said.

An ‘a la Carte’ Approach

Channel Futures asked Baur what he meant by a comment he made in his keynote address about serving different partner needs.

“We’ve got a vast combination of partners, and maybe you have very specific business needs and expectations. Our job is to focus on your needs, not on the needs of the masses,” he said the day prior.

Baur said a dozen top agents recently gathered with Intelisys and ScanSource leadership. Striking to him and Intelisys leaders was how these agents varied from one another in their business models and maturity.

“When we bought Intelisys they all looked the same. They came from the same backgrounds; they had the same needs. When we met these 12 two weeks ago in Greenville, a third of them were the independent legacy partners. There was another third that were the new roll-up companies. And then there was a third that were the young guns — the new players,” he said.

He quoted Intelisys vice president of partner experience and enablement Kristy Thomas, who said, “We need to meet you where you are.”

“We will address you in the way you need us. If you’re the legacy independent, you may have built great systems and maybe you’re a much bigger company. You need different things from ScanSource than that young company that’s new. Maybe they are the ones that need an investment. We need to give them this a la carte menu. That’s what the quote means. It’s a la carte; it’s not one-size-fits all,” Baur said.

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ScanSource’s Rachel Hayden

Hayden said conversations with partners at the ScanSource Channel Connect conference have validated that approach. She said newer partners often require more back-office functions from Intelisys, while larger and mature agents tend to demand “more strategic” conversations.

“Being a consumer of technology, I could completely understand where they’re coming from. Your problem is not the same as my problem. Every consumer has a different problem they’re trying to solve,” Hayden told Channel Futures. “So the flexibility of having the value-added distribution business allowing us to fund these investments is going to be a game-changer going forward.”

Want to contact the author directly about this story? Have ideas for a follow-up article? Email James Anderson or connect with him on LinkedIn.

 

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About the Author(s)

James Anderson

Senior News Editor, Channel Futures

James Anderson is a news editor for Channel Futures. He interned with Informa while working toward his degree in journalism from Arizona State University, then joined the company after graduating. He writes about SD-WAN, telecom and cablecos, technology services distributors and carriers. He has served as a moderator for multiple panels at Channel Partners events.

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