Avnet is selling half its business -the Technology Solutions operation to Tech Data for $2.6bn. Under the terms of the agreement, Avnet will receive $2.4bn in cash and 2.8m shares of Tech Data common stock currently valued at about $200m.
"Moving forward, Avnet will focus its resources and investments on becoming a leader in design chain and supply chain services," says newish CEO William Amelio, but how the integration works in practice remains to be seen. Vendors in particular have been concerned at the consolidation of the global distribution sector, which although it gives them an efficient coverage model, can lead to market dominance in some regions.
Avnet will be left with its components business – EM which is around half its total sales. It had been thought that the two halves would work more closely together on Internet of Things solutions, seen by some as the next profitable area for distribution. EM has been growing – buying UK-listed Premier Farnell in July this year.
For Tech Data, it gives it immediate scale, although it shares some of the larger vendors with Avnet. It also changes its global mix – in Q1 Europe was around 60% of total sales; Avnet's US business, which has been growing fast and was around $1.4bn in the last quarter will give TD a new US base to work with.
One of the most interesting questions will be the future of the management and skilled staff at Avnet TS, which has been busy building up its technology-driven units. If these move wholesale to TD, and that company's structure is adapted to accommodate them, then there may be a good future here. The expertise may, however, decide that in such a distribution sector where skills and vendor relationships are of such value, and start-up costs reduced by cloud models, they could start out on their own. We could see a number of interesting vertically aligned distributors launched in the next year.