What Ingram's Sale Says About The Distribution World


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When news broke recently that China-based HNA Group was ready to serve up a significant premium of nearly $10 a share over the then-trading price for Ingram Micro, the telephones here lit up.

The discussion was largely around speculation over what it means to the industry, government contracts serviced via Ingram, and to the distribution business as a whole.

There have been lots of questions surrounding Ingram's ability to continue to service government contracts once the deal closes later this year. That, of course, will be entirely up to the federal government so any discussion around that is purely speculation at this point. But rest assured Ingram's competitors will at least try to take advantage of the uncertainty until the government decides.

[Related: Ingram Micro Exec: Proposed Chinese Ownership Won't Hurt Our U.S. Federal Business]

More important to me is what the acquisition says about distribution.

While I hesitate to try to lump all distributors into a single bucket given they all have different strategies, one thing is universal. All successful distributors are amazingly efficient at moving product from Point A to Point B, and the rest of the industry often underestimates that value.

HNA Group, which I have no direct experience with, is at its heart a logistics company. With apparent plans to become one of the top 50 largest companies in the world by 2020, the addition of Ingram to its stable is a significant step to get there.

A player in the airline industry with ownership in several Chinese airlines, HNA also is involved in ship-building, marine cargo transport, air cargo, and now soon-to-be IT distribution.

Given its position in marine cargo and air cargo transport, it would seem to me that HNA's strategy could very well surround gaining competitive advantage by owning and linking the different elements of transport together, taking out redundancy and driving costs lower to give it a pricing advantage.

That, of course, sounds like a low-margin business, but if you are going to be in a low-margin business your best bet is to have the lowest costs.

While all the high-tech distributors have different growth strategies that center around many different approaches, they all build on an ability to spread out costs but also build other value with expertise in technology, credit, access, professional services, etc.

Just exactly what the Ingram sale means remains to be seen, and it will be a year or more before anyone can determine if it means there will be real changes to its model. In the meantime, I look at it as more confirmation of the value distribution brings to the market via expertise in logistics and many other capabilities that are incredibly difficult to do profitably on a large scale.

In the end, consolidation continues among solution providers' vendors and distributors alike as the maturation of the industry drives some players to push for a "get big or get out" strategy. Given the low growth of the overall economy for what is now closing in on a decade, public companies like Ingram have a need to grow and sometimes mergers, acquisition or a sale is the best way to get there.

In this case, Ingram clearly feels it is better off being part of a larger business in a related industry. Only time will tell if it is the right strategy, but if you're a shareholder the payday sure looks to be a good one.

BACKTALK: Make something happen. Robert Faletra is CEO of The Channel Company. You can contact him via email at rfaletra@thechannelcompany.com.

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