"One thing is certain in business. You and everyone around you will make mistakes."
-Richard Branson
September 19,2016
Avnet Sells Technology Solutions Unit to Tech Data
Financial Information
- Transaction Value $2.6 Billion
- Transaction Value/LTM Revenue 0.27x
Transaction Facts
- Avnet (NYSE: AVT) announced today that it entered into an agreement with Tech Data (Nasdaq: TECD) to sell its Technology Solutions Business Unit for $2.6 billion, in the form of $2.4 billion in cash and 2.8 million shares of Tech Data stock.
- The deal is expected to be significantly beneficial to both parties. Avnet predicts a gain between $3.75 and 4.75 per share from the deal once closed, while Tech Data expects annual cost savings of $100 million within two years of closing.
- Following news of the transaction, both stocks closed up significantly — Avnet was up 6.8 percent, or about $340 million, while Tech Data closed up 22.9 percent, or about $550 million.
- Subject to regulatory conditions, the transaction is expected to close in the first half of 2017.
Circling The Wagons
- Consolidation is the Name of the Game: With the economy locked in a persistent low-growth cycle, consolidation has been the key differentiating factor, especially among more commoditized sectors such as the IT Distribution sector. Large inorganic growth plays both bring cost takeout opportunities and relieve pressure through taking out competitors.
Taking a Stand: Each of the large distributors have chosen a unique response to consolidation pressure. Ingram Micro joined Chinese conglomerate HNA Group in a blockbuster acquisition earlier this year. Synnex has built up its Concentrix BPO unit as part of a successful drive into higher margin services. Tech Data is doubling down on its distribution capabilities, bringing 5,000 new employees and almost $10 billion in additional revenue.- Geographical Distinction: Tech Data has historically been primarily focused on the US and EMEA markets, but with this acquisition significantly bolsters its presence in the APAC space. In today’s increasingly global market, depth is critically important — especially with Asia home to the world’s fastest growing economies. Following the transaction, Asia will account for 3 percent of the combined company’s revenue.
- Value for Both Sides: Avnet’s Technology Solutions division reported revenues of $9.65 billion this year, down 8.8 percent from the previous year’s $10.58 billion. This acquisition allows Avnet to capitalize on the division’s impressive size without investing heavilly in a turnaround, while Tech Data benefits from a greatly expanded portfolio of offerings and vendor partnerships.
Taking a Stand: Each of the large distributors have chosen a unique response to consolidation pressure. Ingram Micro joined Chinese conglomerate HNA Group in a blockbuster For more information about this transaction, click here to read the press release.
martinwolf was not the advisor in this transaction.
