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Ingram Micro’s Paul Bay Swipes At Rival’s ‘Leveraged’ Buyout, Possible Downgrade

‘You’ve seen the news that’s out there about the acquisition is going to heavily leverage up one of our competitors and there’s a strong likelihood, based on the press, that they’re going to be downgraded, if not one, multiple levels from a credit rating perspective,’ executive vice president and president Global Technology Solutions Paul Bay says.

Ingram Micro’s newly announced executive vice president and president Global Technology Solutions Paul Bay said the company is not leveraged with debt due to its ownership by Chinese conglomerate HNA Group, as sources recently said.

However, Bay said a competitor is, and he expects its credit to get downgraded as a result. Bay did not address the rival by name.

“The acquisition that happened with Ingram Micro did not leverage our balance sheet, unlike other acquisitions that are going on that are out there right now,” Bay told CRN. “Our balance sheet is not leveraged because of the acquisition. Whatever happens to our parent company or the debt that they have on Ingram Micro is not on our balance sheet from an Ingram Micro perspective. That’s how I would respond.”

Bay said “furthermore, we’ve been re-validated by Moody’s,” which he said gave the company a good credit rating.

“You’ve seen the news that’s out there about the acquisition is going to heavily leverage up one of our competitors and there’s a strong likelihood, based on the press, that they’re going to be downgraded, if not one, multiple levels from a credit rating perspective,” Bay said.

[RELATED: 8 Big Things To Know About The $5.4B Apollo Global Management-Tech Data Deal]

Following the announcement last month that it was being acquired, credit ratings agency Moody’s said it placed Tech Data “under review for downgrade.”

“The review for downgrade is based on the expectation that the company will have higher financial leverage following the acquisition given the private equity ownership,” Moody’s wrote in a Nov. 14 post. “To the extent any unsecured notes remain outstanding after the close, a multiple notch downgrade of the unsecured rating is likely.”

In response to Bay’s comment, Tech Data Chief Financial Officer Chuck Dannewitz said the company has a “strong financial position.”

“We expect to continue to maintain a healthy balance sheet and a strong financial position that will provide our channel partners with the financial support they are accustomed to when doing business with us,” he told CRN via email.

Tech Data said this week that the “go-shop” period had expired, leaving Apollo Global Capital as the winner of a buyout offer that stands at $145 a share. The deal now must be approved by shareholders as well as regulators. Sources close to the deal had earlier scoffed at the idea that the deal was being financed with debt, said there is little leverage involved in buying Tech Data.

“The equity check is over $3 billion,” the source told CRN in November. “There will be more equity than debt in this deal. So leverage will be in the twos. Other sponsors by companies put six or seven times leverage. This deal is not about financial engineering. This deal is all about investments in the business and continuing to grow and do more.”

That same source said at the time that one reason Apollo did not aggressively pursue Ingram Micro is that the company was too leveraged with debt, an assertion that Bay rejected.

In terms of what could be next for Ingram Micro, Bay was reticent, only saying he anticipates more consolidation and investment in the market, whether its solution providers, vendors or distributors, which he said shows the value of the business they are in.

Ingram Micro has been the non-stop subject of acquisition rumors since last year when Apollo was reported to have made an offer for the distributor. Earlier this year, additional rumors said Ingram Micro parent company HNA was shopping the distributor to potential buyers, including RRJ Capital, a private equity firm operating in China and southeast Asia that has more than $10 billion in assets under management.

“There will continue to be consolidation, whether its customer, vendor, or distribution,” Bay said. “I think the acquisitions and or investments by private equity, and its not just the big one with Apollo and Tech Data there are others that are being announced and or conversations that going on that are just going to continue to drive the value of this channel. That’s an exciting thing for everyone in distribution. I think there’s been more conversations around distribution in the last couple years than there ever has, which is great because we’re figuring out how to solve business problems and outcomes for our partners.”

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