Synnex's Software Bet

Wanting to focus on midrange solutions, Arrow Electronics agreed to sell Gates/Arrow, Greenville, S.C., to Synnex, based here. The deal allows each distributor to build on its strengths, said executives at both companies.

Arrow Electronics retains all its midrange distribution businesses: MOCA, SBM, Support Net and Arrow/Wyle, which will be the focus of its North American Computer Products group, said Mike Long, president of the group.

"The midrange and broadline businesses have been growing further and further apart. Gates/Arrow needed to be with a company focusing on that 100 percent of the time," Long said. "We tried for years to bring a lot of value to resellers in that space, but they basically buy on price and delivery. We can't offer the lowest-cost model anymore. Synnex does this type of business every day."

The purchase price, a combination of cash and assumption of stated liabilities, will be determined by the value of the assets and liabilities on the closing date, which is expected within 30 to 45 days.

Synnex President and CEO Bob Huang said the distributor wants Gates/Arrow for its software catalog. "Software will get us into a different customer base than what we have today," Huang said. "[Gates/Arrow has very strong enterprise-level vendors. That brings us to the next level."

Gates/Arrow's software partners include Computer Associates International, Enterasys Networks and Veritas Software. Currently, software sales account for less than 10 percent of Synnex's sales, with Microsoft products accounting for the bulk of that, a spokeswoman said.

Keith Grable, president of Westwood Computer, said the deal allows Synnex to better serve customers. The Springfield, N.J.-based government solution provider sells Citrix Systems solutions, which it could not source from Synnex until now.

"Synnex has been doing a good job, but it sounds like [the acquisition will give them a little more robust product line, a little more meat. I see it as a positive," Grable said.

Gates/Arrow accounted for about 5 percent, or $97 million, of Arrow Electronics' sales in the March quarter. In contrast, privately held Synnex had about $3.2 billion in revenue last year.

"Gates/Arrow was competing with Ingram Micro and Tech Data,and [with Synnex on a much smaller scale. It's hard for me to imagine that business delivering much to [Arrow Electronics' bottom line, if anything," said Brian Alexander, analyst at Raymond James and Associates. "I understand Synnex is a very efficient company with a lean cost structure."

Synnex plans to drop the Gates/Arrow name after the integration, Huang said.

About two-thirds of Gates/Arrow's 300 employees are expected to retain their jobs with Synnex, Long said.

"It's pretty early to tell about [integration into Synnex, but now all the back-office functions are going full-speed ahead," he said.