What is a VAR or hardware reseller worth?

Two resellers can book the same hardware revenue and be worth different amounts, because some of what a buyer pays for may not appear on the income statement. A value-added reseller sells branded hardware and software licences that someone else manufactures, so check how much margin the reseller keeps on a single box. What a buyer may really be valuing is the right to keep buying at partner pricing, and the customers who keep returning to this particular seller to renew, extend and support what they bought. Any multiple quoted in the market is general industry commentary, never an appraisal of a specific business, and this page gives none. It explains what moves the number and leaves the figure to your advisor.

The vendor relationship is the asset

A manufacturer’s partner program gives a reseller its tier: the price it buys at, the rebates and incentive funding it can earn, and in some programs the ability to register an opportunity. Ask each manufacturer which of these a new owner keeps. Authorization may be a status the vendor confers and reviews rather than property the owner can hand over, so treat it as an asset at risk rather than cash in the bank. Check how many manufacturers the reseller is authorized with, and whether any one of them supplies most of its gross profit, so that it is effectively a sales agent for a single brand. Supplier concentration is the term for that exposure.

Resale margin versus the layer that repeats

Split gross profit into what was earned once and what comes back. Licence and subscription renewals, support and maintenance agreements, and managed or leased hardware are the kinds of revenue that can be modelled forward. Count only the part tied to this reseller: a renewal that sits under the seller’s partner identity with the vendor, on a contract the customer cannot easily move, may be worth more than one the customer could shift to another reseller with its next purchase order. Where the figures show mostly resale and a services practice that is barely developed, ask whether that is upside a buyer should pay for, or upside the seller never captured. See recurring revenue.

How the earnings get recast

Recasting starts with the usual adjustments for owner pay and personal costs, covered under add-backs, but resellers may carry distortions of their own. Ask whether the rebates and incentive income in each year were received, accrued or merely claimable, and whether one large project pushed the reseller over a volume threshold that will not repeat. Ask whether slow-moving stock sits at cost on the balance sheet when it should have been written down, which overstates both assets and earnings. BDC notes that buyers typically ask to see year-end and interim financial statements and projections as part of due diligence, and advises reviewing records with an accountant so interim statements are accurate and projections realistic.

Why similar-looking resellers price differently

Put two resellers with identical revenue side by side and the gap can come from a short list of differences, each of which is a way a buyer could lose the earnings it is paying for.

• The pricing tier rests on a technical certification held by one engineer, or on a relationship with one vendor representative, and either can leave with the seller.
• The tier is maintained only by volume commitments, so a smaller buyer could slip a level and lose margin the model assumed.
• A large share of gross profit comes from a few customers, or from one public-sector or education contract that comes up for re-tender.
• Services and renewals are written into contracts with the reseller, rather than assumed from habit.
• Stock is current and warranty claims are closed out, so the working capital a buyer must fund is not hiding a clean-up.

Inventory, goodwill and the price allocation

The Canada Revenue Agency notes that a sales agreement may set a price for each asset, a value for the inventory and an amount attributed to goodwill, and that depending on the seller’s situation the sale of assets can produce a recapture or terminal loss of capital cost allowance. If the reseller carries obsolete or unsaleable stock, settle how the inventory will be valued before the price is agreed, and remember that the allocation is a tax question for both sides, whatever the headline price. Read how inventory is valued in a business sale, and treat the allocation as a conversation for your accountant rather than a detail left to the draft agreement.

Different buyers, different questions

Ask what each kind of buyer would do with what you have: a larger VAR or distributor consolidating vendor relationships, a strategic buyer that already holds the same authorizations, or an individual buyer. For each, ask the manufacturers what that buyer would need to qualify. Merger rules apply too: under the Competition Act, whether a transaction must be notified depends on financial thresholds and other criteria, including exceptions to notification, though the Commissioner of Competition may review any merger regardless of size. As one example of lender wording, BDC describes a business purchase loan as financing an existing business with revenue and an established client base, with additional financing available for goodwill and a client list.