back to article Tech Data to slurp Avnet TS for $2.6 BEEELLLION

Tech Data is to buy Avnet Technology Solutions for $2.6bn in a deal that, when completed, will create the chunkiest enterprise IT distie on the planet. Under the terms of the transaction, Tech Data will stump up $2.4bn in cash and 2.785 million of its shares (roughly seven per cent of the ownership position), the US companies …

  1. Anonymous Coward
    Anonymous Coward

    This was a good match. Ingram Micro is the 'does it all' distributor and had to compete on two sides: one with high value only companies like Avnet and Arrow, and other the other with box pushers like Synnex and Tech Data. IM had to be low price to compete with box pushers and high value to compete with the As. This basically meant they had to undercut the margin they should have gotten on the high value stuff, pulling the industry down.

    By joining Avnet and Tech Data, there is another 'do it all' distributor out there to steady the market a bit. Ideally Arrow and Synnex would also merge, so there are three players of roughly equal shape.

    Hopefully the consolidation will put a damper on the excessive price wars we've seen on top of the commoditization of IT.

    /anon because former insider in this industry

  2. The Godfather
    Coat

    Here we go again

    Compiled a list of UK distributors back in 2010 and I had around 68 names. This has now shrunk by 55%. This mean less choice and further downward pressure on gross margins. Expect more because they simply cannot survive without acquiring currently. Seems that as manufacturers consolidate, so do Distributors.

  3. Dieter Lott

    Overall good news for those invested in the IT Channel. Private Equity swoops in where they see an undervalued asset. Ingram, Tech Data, Anixter, Infinigate, Exclusive Networks are to name a few with PE's as owners. You see the same trend with resellers MSPs, SI's etc. Tech Data's future owner for example owns Rackspace. So why now?

    A distributor’s profit model is highly scale driven – in theory as you grow efficiencies are achieved and profit ratios improve. However the industry’s track record for driving costs down isn’t the best - a good efficiency measure is SG&A as a % of NGP.

    SG&A consumed 70% of TECD’s Net Gross Profit – the Avnet acquisition helped only improve it from 75% ; A 70% increase in this case of NGP didn't create the level you would hope for.

    This is the Private Equity firm’s bread and butter - leveraging scale to create efficiencies.

    To achieve scale you need growth.

    From 2007-2017 Tech Data sales grew only 1.2% on average every year. I would argue this shows a loss in market share YOY. TDEC has also not been highly acquisitive - TECD has approx. USD100m interest expenses per year

    By delisting Apollo a huge amount of management time will be freed up - from my experience around 20%! Also a longer term vision can come into effect - its no longer just about this quarter's results.

POST COMMENT House rules

Not a member of The Register? Create a new account here.

  • Enter your comment

  • Add an icon

Anonymous cowards cannot choose their icon

Other stories you might like

Biting the hand that feeds IT © 1998–2022