During the last twelve months, there has been a flurry of business activity in the global AV Integration market. The major players in the UK, and abroad, have been shaping up to meet the demands of international business. Chris Fitzsimmons looks at the bigger picture.
In December 2007, Audio Visual Machines, the London based full service AV supplier, announced the formation of a network of four partners to service international clients. Since then this alliance has expanded to encompass a total of 11 organisations around the world. This move followed 12 frenetic months of acquisitions, subsequent to a finance-backed MBO in October 2006. AVM’s latest acquisition of Matrix Display Systems announced in July 2008, brings the company’s annual turnover to £45m.
At the same time, rival firm Impact Marcom, part of the European Impact Group, announced its own Global Presence Alliance, a joint venture between the company and American partner the Whitlock Group. The aim here is also to establish a world-wide network of like minded companies in order to service global clients.
Then at InfoComm 2008, Verrex Corp, an American full-service integration outfit headquartered in New York, announced its intention to open an office in the UK, at Hertford just outside London.
But was has been driving all this activity? Well, that’s about the only thing that all these companies can agree on – customer demand. Increasingly big business wants to buy its AV from one place in each territory and preferably all over the world.
This is what has driven AVM’s expansion, as managing director Edward Cook explained: “Since AV usage has gone through the roof, companies have realised that they need to centralise and start treating it as a proper resource. And so, they are starting to adopt their central purchasing policies, which do tend towards using larger, single suppliers. For example, somebody like BP five or ten years ago decided to outsource all its IT to EDS. But only in the last six to nine months have we been starting to hear BP talking about one single AV supplier for all of the UK and saying that it would be good if it could be for all of Europe. And if it could be for the whole world, that would be even better.â€
This adoption of more traditional central purchasing procedures is a recognition of the importance now attached to AV services, and in particular video conferencing applications, by the international corporates. However those procedures call for much more rigorous supply chain management. AV is now no-longer packaged into facilities management along with the plumbing, but right up the priority list with IT.
When buying IT, supply chain management actually means supplier chain management, and this in turn essentially means less suppliers. Edward Cook again: “Big clients have always attempted to reduce the number of suppliers they deal with due to the cost savings this brings, and with the current economic climate this process is being accelerated. Because AV has been pretty small in the past it has been overlooked in this regard, but that’s now changed. They don’t want small companies on their supplier lists.â€
Now as a growing company, which now claims with some justification to be the largest in the UK, it’s unsurprising that the MD of AVM believes that bigger is better. Certainly on a national level AVM, and its competitors, are looking to achieve a reach, which will enable them to service clients nation-wide. But what about away from home? As Cook pointed out, one supplier per country is a must, but one per continent is better and one per planet is ideal, if you are a large customer.
There is more than one way to skin a cat, or in this case, to improve your international reach. Plan A, as adopted by both AVM and Impact Marcom, is the international partnership approach. Julian Philips is Impact’s managing director and he explained his own company’s strategic thinking: “They [our customers] wanted to have relationships with companies who could deliver solutions to common standards to multiple territories. We decided that establishing our own offices in the USA presented us with too many difficulties – such as unionised labour and local legislation, and even time zone differences. The decision we arrived at was to establish a transatlantic relationship, but we didn’t want to end up with a loose alliance, that was just a lead-referral scheme. The framework for putting Global Presence together with Whitlock is much deeper than that.†Philips goes on: “What we are doing differently from others, is creating a universal set of standards, and services. We are working together on joint project management methodologies and a way to account manage global relationships as well.â€
Philips envisages three groups of customers for the Global Presence Alliance. Firstly Impact clients headquartered in Europe who need servicing abroad. Secondly Whitlock customers from the USA who need the same thing. Finally there is new business to both companies seeking a global supplier. There are contractual agreements between Whitlock and Impact to seek further international partners to service these requirements and, which include not impinging on each other’s territory for business.
Plan B is to acquire abroad. This is not something undertaken lightly, buying a foreign owned company is considerably more complex than buying a domestic one. However AVM’s Edward Cook said that even this approach is preferable to them than the third option, Plan C – organic growth. Part of Cook’s aversion to this is that he sees the pace of growth as being so rapid that there just isn’t time to go through the rigmarole of a buy out abroad. By the time you have identified an appropriate target and gone through the process, your customer may well have gone elsewhere. International partnership is a relatively quick method of increasing reach.
Plan C is to do it yourself. Whilst it might not be fast enough for some, or easy enough for others it has been tried successfully in one direction, and is being tried again now in the other. Verrex’s decision to open its UK office was based entirely on the request of a single client, State Street bank, as George Massey revealed in July’s edition. “Our mandate in that office will be to service the needs of our international clients. A major driver has been State Street, who invited us to bid on their office consolidation in London, and then subsequently to take the maintenance contract.â€
Domestic UK companies have been somewhat sceptical about Verrex’s arrival, both of the impact on their own businesses and also the longevity of their tenure.
Impact’s Philips agrees: “Having an office with a few people in it is ok, but its has limitations when dealing with international clients. You might have on your letterhead that you have an address, but it’s your capability to deliver service within the territory that’s important. The buy, build, ship approach that Verrex have adopted is attractive in the UK at the moment due to the weak dollar. But that could change, and there are also issues with the grey importing of product.â€
One company that has previously succeeded in opening up abroad is the DRV Group, this Devon-based company has a number of major clients in the banking, legal and medical sectors. Aside from offices across the UK, it also has sites in Chicago and New York providing AV services to its international clients. However, not content with that, these offices, which were established in 2005, now successfully pitch for new business in the USA, as well as having responsibility for DRV’s international projects in territories such as South Africa.
Each of these methods has its benefits and also its pitfalls. AVM’s expansion is venture capital backed, and venture capital firms exist to deliver profits, they also often run on five year plans. Acquiring companies can also be a messy business. By Edward Cook’s own admission it would be a disaster for AVM if they fail to handle the acquisition of businesses in such a way that they hang on to the things they want most – the staff and the customers. However he also insists that having done a number of smaller acquisitions his company is equipped to ensure a smooth transition for Matrix and its people.
Perhaps the most sobering thought though is that the activities of AV providers could yet become a side show. Impact’s Philips believes that the most important news stories of the next few years might not be AV mergers or partnerships, but about IT infrastructure and telecommunications companies. He cites BT’s April acquisition of Wire One, the US video services provider as a key example of a telco getting in on the act.
Overall what we are certainly witnessing is the start of global consolidation of the AV market. Even if that doesn’t mean mergers and acquisitions across international boundaries quite yet, the first foot falls of this are surely the establishment of strategic partnerships between like minded companies, and the increased similarities between the way in which AV and IT are purchased by the client. The biggest drivers of consolidation will not be the market, but the customers themselves.