Vendor Community Undergoing Unprecedented Change

Vendors have been on a buying spree since the beginning of the year.
LAS VEGAS—Some call it desperation while others call it a natural (and welcome) consolidation of an industry that has seen too many companies supporting the same equipment category for the last five or so years. Beginning last fall and continuing this week at the NAB Show in Las Vegas, no fewer than a dozen companies have acquired other companies in an effort to expand their product portfolios and customer reach.

Most deals did not include financial details, but it is assumed that the purchase price is bigger than it would have been three years ago. So, this buying frenzy is motivated by more that just economics.

MediaBridge Capital Advisors, a company focused on what it calls the “hardware/software consolidation model,” served as the exclusive investment banking advisor on the $25 million sale of U.K.-based broadcast automation and channel-in-a-box software leader Pebble Beach Systems to Vislink plc, a U.K.-based wireless communications vendor, which closed on March 18.

“These acquisitions represent a new dynamic in today’s media markets: a move toward standardized IT and cloud-based technologies,” said John Bowen, co-founder and managing partner, MediaBridge Capital Advisors. “Not only are end user customers able to evolve and adapt more quickly to changing business requirements, but the vendors benefit from higher-margin business and the potential for recurring revenue models.”

Indeed, the stimulus behind the recent acquisition craze is the broadcast industry’s desire to move into IT-centric, software-defined platforms that are more nimble and able to be upgraded easily as new technology emerges. Buying a company is now the preferred method of providing new product lines in the shortest amount of time.

It’s also about relieving an oversaturated market in some product categories. Another way of looking at it: In the consumer electronics industry about 20 of the largest companies attract about 80 percent of the revenue. In the broadcast and professional video industry, the top vendors claim about 20 percent of the revenue.

“If we don’t have the right people and technology, it makes sense to buy a company, as long as it’s a good fit,” said Johan Apel, CEO of ChyronHego, a UK-based graphics company that bought Chyron in 2013. The company surprised some by announcing two new acquisitions, WeatherOne AS, a provider of weather forecast solutions, and ZXY Sport Tracking AS, a Norwegian-based provider of sports tracking software. The new moves give ChyronHego an expanded product line to offer new customers, quickly.

Imagine Communications -- part of the former Harris Broadcast, which was rebranded in March as two separate companies, Imagine and GatesAir -- was itself in a buying mood, announcing at NAB its acquisition of Digital Rapids, a provider of IP and file-based media processing solutions and software-defined workflow management technologies. The purchase puts Imagine in the IT-centric space it feels customers are looking for today.

In a statement, Charlie Vogt, CEO of Imagine Communications, said the move “brings a rich history in pioneering software solutions for high-end media processing applications that strengthens our TV Everywhere business and company.”

Translation: In an effort to keep up with today’s quickly evolving technology world, it made better business sense to acquire Digital Rapids than having to append years and lots of R&D money developing such technology itself.

Quantel, which announced last month that it was acquiring Snell, was prompted by customers asking for complete system solutions that Quantel was not able to offer on its own. Ray Cross, CEO of Quantel, said, “the defining factor was our customers. They needed more products and more local support.” The result is an expanded company with 14 regional offices, where it once had eight, and a total of 150 people in R&D, when it had half that amount. “There’s a limit to what you can do on your own,” he said.

There are several reasons for the numerous acquisition happening this year, but the most cited is the bad economy of 2008-2009, when these mergers should have happened, and a need by vendors to remake themselves to support the new software-centric world customers apparently desire. What seems clear is that companies feel the need to grow in order to increase revenue.

��Companies are re-doing themselves to prepare for the software-centric, IP-delivery future,” said Neil Maycock, chief architect at Snell. “I think we’ll see more consolidation before long. This industry has had too many payers for too long, which put a strain on everybody’s bottom line.

For its part, Belden acquired Grass Valley and closed the deal on March 31 of this year and, after buying the assets of Miranda Technologies in June of 2012 and several smaller companies (including Telecast Fiber Systems in 2011), said it has now spent roughly $800 million to create its now formidable Broadcast division.

“We’re now able to offer over 75 years of combined experience to our customers,” said Marco Lopez, the new president of the rebranded Grass Valley. “This allows us to provide stability, scale and support like no other company in this industry. We feel we’re in a good position to compete going forward.”

Also announced shortly before the NAB Show, Masstech Group, an asset management technology provider, bought Playbox Technology and its channel-in-a-box server product line on March 31; and, at the show, Dalet Digital Media Systems announced it had acquired Amberfin, a specialist in file-based workflows. Both deals were said to have added depth and breadth to the respective buyer’s portfolio.

“There’s going to be more consolidation because customers are facing an uncertain future and they need experts and vendor strength to help get tem there,” said Brice Devlin, former president of Amberfin (who will continue to serve in that role, under Dalet’s leadership). “We both get access to new customers and will benefit from an expanded engineering team that is first rate. It’s what both of our organizations needed to do to compete in the new world of file-based infrastructures.”

At this rate of activity, perhaps the day will come when the entire vendor community will be made of a few companies. Or, these new behemoths could break apart in a few years time, as several other companies historically have done in the past (e.g., Tektronix, Avid Technology and Harris). The clear mantra of the day is: “If you can’t develop it, buy it.”