Tech Data to Buy Avnet’s IT Solutions Group; Shares Surge

  • Deal to give acquirer presence in Asia-Pacific region
  • Avnet has been struggling recently, cut earnings forecast

Tech Data Corp. is buying Avnet Inc.’s technology solutions group in a deal valued at $2.6 billion to expand into Asia and pursue newer products focused on the cloud and data centers. Its shares surged the most in 17 years.

Tech Data will pay $2.4 billion in cash plus shares valued at about $200 million, Phoenix-based Avnet said in a statement Monday. When the transaction closes, expected in the first half of 2017, Avnet projects a gain of $3.75 to $4.75 a share. Clearwater, Florida-based Tech Data said the deal will add significantly to earnings in the first year after closing,

Tech Data distributes products from Apple Inc., Microsoft Corp. and more. As rivals have struggled to remain in business with more manufacturers promoting direct relationships with their customers, Tech Data has managed to survive due to its size and reach, as well as expanding its service offerings. The company sells to customers in more than 100 countries, with Europe accounting for the majority of revenue. The deal with Avnet will establish Tech Data’s presence in the Asia-Pacific region, according to the statement.

Bob Dutkowsky, Tech Data’s chief executive officer, said in a telephone interview 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.

Dutkowsky said the purchase is necessary to keep his company relevant as business technology is increasingly focused on cloud-delivery, mobile, intelligent cars and the Internet of Things.

"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."

The deal will help rebalance the geographic mix of Tech Data’s revenue, something Tech Data’s board has been pushing for, Dutkowsky said. Currently 60 percent of revenue comes from Europe and 40 percent from the Americas.

Tech Data rose to as high as $85.50, a record price and the biggest intraday gain since March 1999, before slipping to $84.36 at 11:15 a.m. in New York. Avnet shares rose 9.2 percent to $42.82 at 11:10 a.m. in New York, wiping out most of the losses for the year.

Keith Housum, an analyst at Northcoast Research in Cleveland, said that the deal will make Tech Data 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. Chief Executive Officer 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 bankers on the deal are Citigroup Inc. and Allen & Co., while Gibson, Dunn & Crutcher LLP is providing legal advice. BofA Merrill Lynch is Tech Data’s lead bank, while Raymond James and Associates also is working with the company. Cleary Gottlieb Steen & Hamilton LLP is Tech Data’s legal counsel.

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