As Telecom Channel Undergoes Consolidation, Partners Ponder the Future

The telecom agent channel is undergoing a season of consolidation, and we’re only getting started.

Several influential telecom master agents and subagents underwent consolidation in the last year due to a variety of factors that include COVID-19, retirement and other market trends.

PlanetOne’s Chris Werpy

Some argue that the season commenced in 2016, when master agents Sandler Partners and X4 Solutions joined forces and distributor ScanSource announced its acquisition of master agent Intelisys in 2016. The slow but steady drip of consolidation continued in 2017 and 2018 as companies like Telarus and WTG made headlines for M&A. However, the volume of transactions increased rapidly in 2019 and 2020 as AppDirect division AppSmart acquired multiple master agents. The consolidation continued as Telecom Consulting Group (TCG) bought Global Systems Telecom in fall 2020, and Bridgepointe Technologies bought Clover Communications. Most recently, Telarus announced the acquisition of Chorus Communications.

More than a dozen sources agreed in separate interviews with Channel Futures that M&A will accelerate further. The consolidation was “inevitable,” according to PlanetOne chief operating officer Chris Werpy.

[Note this is the first of a two-part series on consolidation in the telecom agent channel. Look for our second installment next week, where we hear from subagents about their questions and concerns.]

For Werpy and other members of the agent channel, the consolidation indicates the success of our business model. The channel has been delivering, and people are noticing.

“Eventually when you have that much success and the market continues to grow, you’re going to get the attention of outside investors and outside parties. This was going to happen,” Werpy said.

And this attention is coming to more than a few big players. Moreover, we’ve only reached the “infancy stage” of consolidation, according to Werpy. He said firms all across the channel are entering into conversations about M&A.

“I don’t think a day goes by that a master agent or high-producing subagent doesn’t get a call from someone inquiring about the state of the union,” Werpy said.

Different Strokes, Different Folks

Consolidation varies considerably from acquisition to acquisition.

In some cases, a national master agent is acquiring another large master agent, like Telarus buying CarrierSales in 2017. Sometimes, a national master agent acquires a more regionally focused master agent, like Sandler Partners buying X4 Solutions in 2016 or AppSmart buying Telegration in 2019. In other cases, the master agent buys a firm that sells both directly and through subagent contracts. Lastly, a master agent or subagent may acquire a direct selling agency. We use the terms “subagent” and “direct selling agent” synonymously in this article, although we acknowledge that many companies that call themselves master agents also engage in direct sales.

There are other cases where private equity is involved. AppDirect, to which AppSmart belongs, recently raised its total funding to $465 million. Telarus took an investment from Columbia Capital late last year.

Telarus chief operations officer Richard Murray said his company’s decision to seek private equity stemmed in part from “pent-up” demand in the market for consolidation.

“Many company owners have been at this for some time and have reached a stage where it makes sense to think about how to move on, how to provide for their employees, and how to stay viable for their subagents,” Murray said.

Telarus’ Richard Murray

Just as the company profiles differ significantly between transactions, the motivations and intended outcomes differ significantly.

Retirement

TCG’s Dan Pirigyi

Dan Pirigyi, managing partner at TCG, cited retirement as a common factor. Forrester predicted three years ago that 40% of channel owners would exit the industry by 2024. In the case of Global Systems Telecom, which TCG acquired last year, the owners sought consolidation because …