A spate of takeovers and sell offs is set to sweep through the UK IT channel as the downturn takes hold, new research from Plimsoll has asserted.

Consolidation will be driven both by the need among larger players to raise margins by moving into niche markets, and the desire of niche players to sell up to larger, cash-rich firms.

The market analyst has identified an emerging pack of 232 niche VARs, but said the slump has prompted many to look for buyers.

Plimsoll claimed that many of these businesses are reaching a critical point in their development, adding that the tightening in credit and money markets is hampering their growth plans. This is despite the fact some are earning margins of 5 per cent and enjoying annual sales growth of over a quarter.

At the other end of the market, many larger resellers are struggling on 1 per cent margins and are keen to buy their way into emerging markets, Plimsoll said.

David Pattison, senior analyst at Plimsoll, said: “It has a great deal to do with necessity. Many of the larger players in the market, despite the downturn, are desperate to find new ways to develop their business, but with the current climate, costs are being cut and business development is being slashed.

“So they need options to help them protect their futures and tap into exiting revenue and profit streams,” he said.

Pattinson said for smaller, niche VARs, selling up could bring stability to their business and accelerate the development of the firm due to extra resources.