Global technology distributor Avnet has entered into an agreement to sell its Technology Solutions operating group to Tech Data Corp. in a stock and cash transaction valued at approximately $2.6 billion.
Under the terms of the agreement, Avnet will receive $2.4 billion in cash and 2.8 million shares of Tech Data common stock, currently valued at approximately $200 million. According to a company press release, the sale will provide both Avnet and Tech Data with “immediate opportunities to focus on core strategies and scale their respective businesses, ultimately delivering greater profitability to their shareholders.”
Speaking to Bloomberg, Bob Dutkowsky, Tech Data’s CEO, said that distributors remain an important and efficient sales channel for technology products, noting that hardware makers like Dell Inc., which had once sold only direct-to-consumer, have moved back to using distributors like Tech Data and that customers increasingly wanted “one-stop shopping” for all their software and technology needs.
“All of the motion in technology was moving away from the sweet spot we had lived in, which was in the office, on the desktop,” he said, adding that in a 30-year career in technology he had never seen the pace of change as quick as it is today. “This purchase extends our footprint and gives us skills we don’t have today and positions us for the next wave of technology.”
In the Bloomberg article, Keith Housum, an analyst at Northcoast Research in Cleveland, said the deal positions Tech Data as one of the top four players globally in providing data center and security solutions, two areas where it hasn’t been as strong. He also said that Avnet’s “better-than-average margins” mean that the deal should boost results. Avnet had been struggling recently, Housum said. CEO Rick Hamada left in July after the company cut its earnings forecast. William Amelio, who was appointed interim CEO, was given the job permanently on Sept. 6.
Avnet’s Technology Solutions operating group is a global IT solutions distributor serving customers and suppliers in more than 80 countries. It provides next-generation solutions, marketing, training, resources, and services that span the cloud to the data center and encompass the entire IT lifecycle. Avnet works with value-added resellers (VARs) to make it easier and more affordable to enter and excel in high-growth technology and vertical markets locally and around the world. Additionally, Avnet and Tech Data intend to partner on delivering Internet of Things (IoT) end-to-end solutions to the market.
According to MarketWatch, shares of Avnet Inc. AVT surged 2% in light premarket trade one day after the Tech Data Corp., announced the deal. Tech Data said the deal, which is expected to close in the first half of 2017 will “significantly” add to adjusted earnings per share in the first year after closing. The company also expects to realize $200 million in present value of tax benefits.