Demystifying the M&A Buzz Now That AV Has Two $1B Companies

Diversified and AVI-SPL both cracked the $1 billion annual revenue barrier last week, but what do those deals mean for the overall pro AV industry?

Alan C. Brawn Leave a Comment
Demystifying the M&A Buzz Now That AV Has Two $1B Companies

We know that the recent mergers and acquisitions in commercial AV are all the buzz. While this may be unsettling to some, it is further evidence that our industry is changing.

Diversified became AV’s first $1 billion company when it acquired Sensory Technologies early last week, then AVI-SPL and Whitlock announced plans for a $1.3 billion merger that surprised many people across the AV industry landscape—including the CEOs of both companies.

As I preach to all who will listen, the only constant is change (especially today) and we need to understand it, learn from it, embrace it, and then find ways to profit from it. This is what’s happening here. These changes are all about business models and focusing on growth opportunities.

I hope the following observations will provide some insight as to what is going on and why:

VC and PE in AV M&A

If you look at most of the mergers and acquisitions over the last few years, the root of it can be traced to venture capital investments. For them it is all about sustainable business models and ROI. This flies in the face of the passion for AV that heretofore driven the creation and expansion of our industry.

I am not saying that these business folks do not like the “nature of the best” but that their focus is on the bottom line from the outset of the investment.

From their perspectives they see several things relating to growth and potential profits:

  • IoT
  • Big data
  • UCC
  • Convergence of AV and IT
  • Digital signage
  • Managed services

The investment community sees expansion far beyond the traditional commercial AV model. Their research shows unbridled growth in all of the areas noted above and most importantly the recurring revenue opportunities beyond the hardware sale.

Think of managed services and subscription models. The point they see most clearly is that a company has to be big enough to take advantage of these opportunities.

They see the need to have sophisticated multifaceted organizations to address these growth areas in a meaningful way. They also see the importance of the diverse parts of their operations being able to communicate with one another and amplify their efforts.

Look at how each of these growth areas interacts with one another. To meet their objectives this necessitates a business model and approach far greater than what they think a “mom and pop” type AV or IT operation can provide.

Why Investors Want a Piece of AV

From a geographical perspective, investors look at a map and BPI type numbers. As Willie Horton the bank robber said, “I go where the money is.”  By merger and acquisition, they feel they can dominate a region and go where the money is. In this manner they can meet their objectives in a broader sense.

Contrary to some who think it is all about sales (and to some degree it certainly is), there is also a cost component to consider and contain. Investment companies are experts in controlling costs.

They see the economy of scale aspect whereby merging or acquiring companies the cost of operations overall can go down in relationship to expanded sales numbers and resulting profitability.

These recent moves do not mean that all the smaller commercial AV companies need to live in fear. On the contrary many can actually thrive in this environment but (and this is a big but) they will need to create and embrace their own new business models.

They will need to embrace the growth areas that can expand their opportunities. If willing they can learn from the investors and the business analysis, they are conducting that is leading to these notable mergers and acquisition.

These moves are not predicated on a passion for displays, audio systems, or remote control. This is 100% about business, creating value, and producing revenue. Most of us have a passion for our industry but today we must treat it as a business first and foremost.

If we then add our passion, we will have a recipe for success.