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Tech Data to slurp Avnet TS for $2.6 BEEELLLION

Consolidation grips distribution as the big are eaten by the bigger

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 confirmed today.

In a statement, Bob Dutkowsky, chief exec at Tech Data, said the “strategic and financial benefits resulting from this transformative combination are compelling for both our company and our shareholders.”

Over at Avnet TS, president Patrick Zammit claimed the scale of Tech Data - it is the second largest tech distie worldwide - would allow it to “unlock value in ways we could not historically” - presumably he is referring to more aggressive prices.

In terms of the hardware portfolio alone, Avnet gives Tech Data access to multiple franchises including IBM, HDS, and NetApp, and makes it the undisputed king of EMC distribution.

Tech Data sales fell to $26.37bn for FY’16 ended 31 January, versus $27.67bn in the prior year, and it reported operating profit of $401.4m from $267.6m. Data centre kit accounted for roughly 30 per cent of this.

Avnet TS sales fell to $9.65bn for FY’16 ended 2 July vs $10.58bn, and operating profit came in at $725.9m compared to $797.4m.

In fact, Avnet has posted top line declines for several years, despite making acquisitions itself, and a turnaround plan was something mentioned by Avnet Inc's latest CEO Bill Amelio, who replaced his predecesor Rick Hamada in July following lacklustre results.

The businesses said that had they acted as one organisation in the 12 months ended July, data centre products would have accounted for 45 per cent of global sales of circa $36m.

The buy will raise Tech Data operations from 21 to 35 countries worldwide, and Europe will account for a little over half of group sales. Avnet trades with 20,000 customers, though how much overlap there already is with the 105,000 that Tech Data sells to is unclear at this stage.

Tech Data said it expects to wring out $100m in cost savings within two years after closing the transaction, but didn’t specify the way in which it will achieve this - presumably some job losses in credit, finance, marketing, etc.

The buy is expected to be completed in the first half of calendar 2017, which will then leave resellers with one less outlet to buy IT, something that smaller shops might not be too happy about. ®

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