News Commentary: Are There Mergers In Tech Data's Future?

new Tech Data CEO Robert Dutkowsky

That's because Dutkowsky has won plaudits in high-tech circles for his ability to successfully engineer the sale of two companies: ERP software maker J.D. Edwards (to PeopleSoft for $1.7 billion) and test equipment maker GenRad (to Teradyne for $260 million).

That experience negotiating deals is more likely than not something the Tech Data board considered long and hard before offering the job to Dutkowsky. There have been an almost mind-numbing number of mergers and acquisitions in the hardware and software technology segment of the market. The same can't be said of the distribution segment.

Dutkowsky has in the past spoken passionately about the fact that consolidation is a fact of life in the maturing technology industry. It's all about scale and scope in Dutkowsky's book.

"The world can't support 25,000 technology companies," he said in an address to the Denver press club after the J.D. Edwards sale. "The world doesn't want to buy from 25,000 technology companies. There is not enough profit to support 25,000 technology companies. And so consolidation in the industry is a reality."

Dutkowsky told CRN this week that Steve Raymund asked him about his mergers and acquisitions background during the interview process. "[Raymund asked me], 'Is your real skill set just to buff up companies and sell them?' My response to him was two things. The first is, my real skill set is to analyze the strengths and weaknesses of a company and put it into the better best position it can be from an operating and performance point of view. Secondly, my next skill set is to create shareholder value. In those two companies' cases, it just so happened that the right thing to do was to execute mergers with those other companies. I'm not certain that that's the right thing for Tech Data -- a $20 billion company in a position of leadership in the industry."

One reason for the speculation around future mergers/acquisitions or even private equity deals is the fact that Dutkowsky does not have previous experience leading a technology products distributor.

"He's not coming into Tech Data with a lot of knowledge about how to take this business and grow it other than finding some new combinations in the industry that work," said one industry executive, who did not want to be identified. "What he does know is how to find investors and position a company for some kind of an event like a merger/acquisition or a private equity deal."

Dutkowksy is no newcomer to hardball tactics, given his firsthand experience dealing with Oracle's hostile takeover bid of PeopleSoft just after J.D. Edwards made a friendly deal in June 2003 to be acquired by PeopleSoft. At the same time, gross margins in the software business or even the hardware businesses he ran at EMC or IBM are a long way from the razor-thin gross margins in the ultra-competitive and unforgiving distribution market.

The Dutkowsky appointment comes with broadline distributors including Tech Data increasingly clashing with specialty distributors such as Westcon, Arrow and Avnet. Tech Data and Ingram Micro, for example, recently started pressing Oracle partners from Avnet and Agilysys to join their ranks. It also comes just after the sudden departure of Ed Coleman earlier this month after only one year on the job as senior vice president and president of Arrow Electronics' Enterprise Computing Solutions.

One of Dutkowsky's biggest challenges will be coming to grips with the differences between the enterprise landscape, where he has extensive experience, and the SMB market where most VARs play, said Wes Herschberger, CEO of MapleTronics, a Goshen, Ind.-based solution provider that buys products from Tech Data, Tampa, Fla.

"I'm sure he understands enterprise solutions," Herschberger said. "But he's going to have to have to learn about the SMB marketplace. You have some of the same needs, but there is a different pain threshold and price tags for smaller businesses."

Herschberger's advice to Dutkowsky: get out in the sales trenches with VARs.

"I'm sure that is something he is going to do," he said. "Any good CEO is going to drop himself right into the middle of a market to figure it out."

That is something that Dutkowsky, given his experience as a CEO at a number of different technology companies, is almost certain to do right out of the gate.