Industry Roll Up

Our industry is rolling up. The Auto ID technology companies that have dotted the landscape for the last 40 years or so, are getting bought up by larger companies. Small to medium sized technology companies that specialize in label printing, barcode scanning, and RFID. Companies that Zebra and Honeywell rely on to supply their products to the majority of their customers. Companies that started selling stainless steel wand scanners, and DOS based mobile computers back in the 1980’s.

At the Zebra Partner event in January, it was noted that 85% of Zebra’s revenue goes through partners. That is 85% of over $5B dollars. That doesn’t include all of the other companies selling their Auto ID products through the channel, easily over $10B dollars in total. Tens of billions of dollars going through thousands of technology resellers like the EMP Tech Group.

Mostly small, regional companies supporting hundreds of customers each, with the technology, hardware and services that these Auto ID products require. Some very large companies like CDW, Dell, and IBM are Zebra partners. And then there is a middle layer of Zebra partners that are national and tend to have the word “Barcode” in their name.

This middle layer of partners are the ones that are doing the rolling up. Typically, they are at $250M plus in revenue, trying to get to a billion dollars. Owned by private equity groups that are rolling up many of the traditional, smaller Auto ID partners into much larger companies.

In our opinion, (this is an Op Ed piece after all) this is not to the benefit of the customer. It is for the benefit of a small group of investors who have identified our industry as fragmented, with an ageing group of founders that are in need of a home for their business as they retire.

Historically what we have seen is that these middle layer companies are mainly e-tailers, selling the least technical products in our industry, online. A convenient purchase for many customers, but not good for highly technical products. At some point, these middle layer companies realize that the customer has product needs that exceed what can be sold virtually and sold through a group of inexperienced telemarketers. So, they look to acquire additional companies that have a technical services team.

But those small technical services groups from the newly acquired companies are soon overwhelmed by the workload. And probably took a pay cut as part of the acquisition. Or the core technical person in the acquired company was one of the former owners who took the buyout, and soon retired. The end result is the e-tailers continuing to lag in technical services groups. They are facing the challenge of building an Auto ID technical services team from scratch. There is not a large pool of experienced technical people to pull from. The team has to be built over time, an investment that we have made at the EMP Tech Group, but is harder to justify by the private equity groups, who are not long term players.

So, what is the answer? We think it is us. Large enough to handle a larger customers’ needs, but still small enough, and privately owned, so we have invested in a robust technical services team to do the integration work needed. The work that is required for the more complex products that we sell, like mobile computing, and RFID. Even label printers and software can be tricky, as you attempt to integrate them with your ERP or WMS, in order to have seamless, automated printing of your labels.

As we have said before, we are the Goldilocks of our industry, because we are just the right size.

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