Arrow To Buy Alternative Technology

Arrow Electronics Thursday said it has signed a definitive agreement to acquire Alternative Technology, a well-respected $300 million specialty distributor. Terms of the deal were not disclosed.

The deal brings more more security and server solutions muscle to Arrow, already the top specialty distributor in the country, according to CRN's 2006 Sourcing Study.

Alternative, which has 150 employees and is headquartered in Englewood, Colorado, said it expects to exceed $300 million in sales this year. Among the products Alternative distributes are: Citrix, VMWare, SonicWall, Secure Computing, Fortinet and Blue Coat.

Arman Eghbali, vice president of managed services at IP Global Voice, a Pleasanton, Calif., solution provider and VoIP hosting company, said the acquisition puts Ingram Micro and Tech Data on notice that broadline distributors will face further competition. "I often think if one buys the other I could pass more of my business to that one distributor," Eghbali said, noting that he deals with multiple distributors.

Eghbali said distributor consolidation is healthy for VARs given that he would rather deal with one large player rather than multiple distributors. "This expands the product offering of distributors and it is something that companies like Ingram Micro and Tech Data have to watch."

Not all VARs agreed. "Deals like this mean less choices for VARs," said Marie Graziano, director for Red Phoenix Systems, a Carrollton, Texas, solution provider. "It means we could eventually be held captive by a few big distributors without alternatives."

Brian Alexander, senior vice president of equity research for Raymond James & Associates, a St. Petersburg, Fla. investment bank, said in a report on the deal that the acquisition will increase the size of Arrow's Enterprise Computing Solutions (ECS) division by some 12 percent and provide diversification benefits for Arrow. "In addition, we believe that Alternative's market has a higher growth profile than the current ECS division," he said.

While the security market that Alternative pursues is growing, Alexander said there has been a "low single digit decline in [Arrow] ECS revenue over the previous four quarters due to concentration in proprietary servers."

Alexander said customer overlap between the two distributors is minimal and cross-selling opportunities make the deal attractive.

The acquisition, expected to be accretive for Arrow in 2007, still faces regulatory approval, but is expected to be completed within the next two months, Arrow said.