5 Questions Facing Tech Data After The Close Of Its Massive Avnet Technology Solutions Deal

A Tectonic Shift In The IT Distribution Landscape

The closing of Tech Data's $2.6 billion acquisition of Avnet Technology Solutions unleashes a $35 billion IT distributor powerhouse that has operations around the globe and derives nearly half its revenue from the data center. That's known.

What's less clear, though, is how Tech Data will go about turning around Avnet TS' performance, which has sustained continued sales and operating margin drops.

Uncertain as well is how Tech Data's Internet of Things capabilities will be affected and how Tech Data's Advanced Infrastructure Solutions business will come together with Avnet's specialty business in North America.

Read on to examine how the closing of this deal will reshape Tech Data, Avnet TS, and the IT distributor ecosystem at large.

5. How Will Tech Data Convince Avnet's Partners Not To Switch Distributors?

Avnet's primary competitor – Arrow Electronics – said earlier this month that it had agreements in place to snag more than $350 million in annual business from other IT distributors in the coming quarters.

Avnet TS partners said they've been contacted by as many as a dozen different Arrow reps trying to get them to switch their business. The push from other distributors was fast and furious in the weeks after the deal was announced, partners said, with competitors reaching out via email, voice mail and LinkedIn.

Avnet TS President Patrick Zammit told CRN in September that the integration plan will secure what made Avnet successful in the U.S. and allow the distributor to bring new solutions and new vendors to legacy Avnet partners post-closing.

4. How Will Other Distributors Respond To Tech Data's Industry-Altering Move?

Tech Data's consolidation of the North American IT distribution space through its purchase of Avnet TS could have a domino effect. There are now just seven IT distributors in North America with annual sales exceeding $1 billion, and smaller members might feel heightened pressure to increase their scale.

The parent company of WestconGroup last month said it is negotiating a material transaction, and sources told CRN the most likely outcome is the sale of the $4.9 billion distributor. Westcon has struggled in recent quarters, with revenue falling 10 percent to $2.26 billion and earnings before interest, taxation, depreciation and amortization (EBITDA) falling 18 percent to $42.9 million.

3. How Will Tech Data Stay Competitive In IoT Without Its Own Semiconductor Practice?

Tech Data and Avnet TS will continue partnering with Avnet's legacy Electronics Marketing (EM) business to leverage EM's Internet of Things capabilities. Avnet also had IoT capabilities in its TS business, while Tech Data formally launched an IoT program in July.

But Arrow Electronics executives have said repeatedly since September that they now have an edge around IoT since they'll be the only distributor capable of both creating and managing the data around a smart device.

Creating an IoT practice that addresses both the design of intelligent devices as well as the communication, storage and security needs of those devices and the data they create is much easier to do as a single company, said Sean Kerins, president of Arrow's Enterprise Computing Solutions (ECS) business.

2. How Will Tech Data Integrate Avnet TS With Its Existing North American Value Business?

Tech Data is an established player in Europe's value distribution space with its Azlan division, which specializes in networking, communications, midrange enterprise server, storage and software solutions.

Tech Data's specialty play in North America, meanwhile, has come through its more nascent Advanced Infrastructure Solutions division, which focuses on data center and network infrastructure.

But in North America, Avnet has the more mature offering in areas ranging from vulnerability assessments to security implementation services to cloud Infrastructure-as-a-Service.

Legacy partners of both distributors will be interested to see how Tech Data and Avnet's specialty capabilities come together in North America.

1. How Will Tech Data Improve The Operating Performance Of Avnet Technology Solutions?

Avnet Technology Solutions continues to struggle in the first half of the 2017 fiscal year, with sales for the six months ended Dec. 31 falling to $4.38 billion, down 14.7 percent from $5.13 billion a year earlier. Operating margins, meanwhile, have decreased to $147.4 million, down 22.3 percent from $189.6 million last year.

That's a similar story to the 2016 fiscal year, which ended July 2, where Avnet TS saw sales tumble 8.8 percent to $9.65 billion and operating margins slip 2.4 percent to $317.9 million.

But Tech Data CEO Robert Dutkowsky has said that becoming part of Tech Data will allow Avnet TS to evolve from servicing channel partners around the narrow data center space to having a broader relationship with them across the entire value chain.