CRN Exclusive: Tech Data CEO On Why Buying Avnet TS Will Put Competitors On Notice

Where Volume Meets Value

Tech Data dropped a bombshell on the IT distribution landscape with its $2.6 billion plan to purchase Avnet's Technology Solutions business, transforming the one-time volume distributor into a value-added distribution data center power.

Tech Data CEO Bob Dutkowsky spoke exclusively with CRN about how the partner program of the combined company is expected to shape up, how the deal will allow the company to take a leadership role around cloud and the Internet of Things, and why being able to support everything from the smallest component to the largest server will be disruptive to the IT distribution landscape.

Dutkowsky also discussed how each company's data center practice differs, where the $100 million in cost cuts are expected to come from, and who will lead the combined company.

How does this deal position Tech Data against other distributors?

We think that the profile of the distributor of the future is going to be that end-to-end model that I described. A distributor that is truly going to be successful has to be able to offer their resellers a broad array of products. And when you look at the landscape of distributors today, when you put [Technology Solutions] and Tech Data together, we will be the most complete end-to-end distributor in the industry. Everyone else has to take an inventory and compare against the breadth of offerings that Tech Data is going to have in the marketplace.

How similar are the partner programs of the two companies?

We think that they are going to be very complementary. The diligence process doesn't allow you to dig down too deeply into things like that. Remember, we're still competitors today. They haven't sat down and lined up all of their programs end to end so we could see it, and we haven't shown them ours either. Remember, right now there are people in the marketplace from Tech Data and Avnet competing against each other. That's how it has to be today. Because we compete against them, we get to see their programs through the eyes of our customers, and we expect they'll be very complementary.

Are you planning to create a single partner program down the road?

The plan down the road is to integrate TS and Tech Data together and take the best of both worlds and create based on all the knowledge and skills and experience that exists inside those two companies that have been in the channel now, combined, for decades. We'll be able to put together that to address the market, how it is today and what it needs to be going into the future.

What will you consider in crafting that program?

Part of the appeal is the fact that we'll have so much domain knowledge when we put the two pieces together about how the channel works, what channel partners really need to be successful, what the vendors look for from the ideal distributor. With all of those pieces, we now have a broader lens that we look through, and we get really excited about what we see the potential to be. But that potential all sits on the other side of closing this transaction, which happens next year.

What is the key impact for channel partners?

When the transaction closes, Tech Data will represent a different profile of a distributor, one that can clearly and concisely serve the end-to-end requirements for the IT ecosystem. We'll be end to end from the data center to the living room, and all points in between. It gives the customer one-stop shopping – 1-800-Tech-Data, and you can get everything from the smallest component of the IT world to the largest server, storage or networking product. You can get cloud services, you can get deployment services. You can get educational services. A very broad array of technologies for the channel partner.

What does the acquisition mean from a technology perspective?

We'll deliver a vision and a pathway to the third platform. Whether that's converged infrastructure or hyper-converged, the securing of all that infrastructure, mobility and mobile platforms, mobile applications all the way out to IoT. Clearly, that's where all the growth in the IT ecosystem is going to be in the next decade. The combination of Tech Data and TS will allow us to be able to serve those markets far more efficiently than we currently have in the past.

Will you be leading the combined company?

The plan from our board is that I'll continue to be CEO of the company.

What strengths will the combined company have around cloud and IoT?

As a distributor, in order to support those emerging opportunities – whether it be cloud, or the Internet of Things or security – distributors have to be able to make investments to support those market trends. By combining Tech Data and TS together, we create a company that has the capacity to afford those types of investments. I'm not going to sit here on the day we announced this transaction and tell you what those intentions are, but you can imagine we're deeply engaged with our vendors and our customers around the transition to the cloud, the transition to securing the interconnected world and the immense opportunity that the Internet of Things represents.

How specifically will the acquisition help with that?

We know what the market needs, and we've built out a broad array of those solutions. You've seen the enhancements we've made to StreamOne recently, but there's more to be done. There's more investments that need to be made. And so by combining these companies, we'll have the capacity to make more investments and serve those markets even more efficiently.

What are the strengths of each company's data center business?

Start with Asia-Pacific. They have a data center business; we're not even there. So the differences are infinite in that that is the beginning of our Asia-Pacific footprint. It'll be a value-based footprint, and we're really excited about the opportunity to invest in and grow the Asia-Pacific market. In Europe, TS and Tech Data are about the same size, but there are different countries they're in, they have different vendors on their line card than Tech Data, so by combining those two companies together, we'll be able to serve more vendors and more customers in Europe.

What about in the Americas?

And then in the Americas, the two businesses are very different. Their TS is more large-enterprise-focused, and Tech Data's is more SMB-focused. So it's back to that end-to-end story – we'll be able to serve the Americas market from the largest resellers down to the smallest resellers with complex products as well as broadline products. So it's three very different models, and we view all three of them to be complementary when we put the pieces together.

How do their capabilities compare in the Americas?

It depends on the vendor. In some vendors, Tech Data has even deeper data center skills than does Avnet. And in other vendors, Avnet has deeper skills. When you combine the two companies, they bring a broader line card with deeper skills across a much broader array of customers. As I said on the call, Avnet has 20,000 customers; Tech Data has 115,000 customers. We serve different places, and so we'll be able to take those more advanced skills that Avnet may have and move them downstream into the SMB space, and we'll maybe be able to move some of our coverage model into the larger space.

What specifically does Tech Data bring to the table in the region?

There are several vendors where Tech Data has far deeper technical skills than does Avnet in the Americas. So when we combine the two together, we think we'll have the broadest array of skills, the broadest line card, the best coverage model, and will allow us to serve the customers and vendors in that space very efficiently.

What do the $100 million in expected efficiencies mean for partners?

It's way too early to make those judgments today. That's the work that will take place in the coming days and weeks as we understand the integration process more. But clearly, one of the things that we really appreciate about the two companies are their coverage models are different, so we want to make sure we have the very, very best of the coverage model.

What about in the back office?

But in the back office, as I said in the call, TS runs SAP and Tech Data runs SAP. And so we don't need two SAP systems, for example. We need one. And we'll be able to migrate over time to one common platform, and that will create efficiencies for the combined company. It won't happen day one; it's a process. It takes time, but we can see the opportunities to create more value for our shareholders that way.

What does this deal mean for the margins of both companies?

In order to compete in the market today, you have to be competitive on all fronts. Price is just one piece of what competitively differentiates one distributor from another. It's services, it's supply chain capabilities, it's technical skills, it's coverage, and it's pricing. And if any one of those models don't align correctly, then that distributor doesn't win. So I think it's very important that Tech Data continues to work to always enhance the value that it brings into the market, whether that value is supply chain or technical skills. Those are the things we're really focused on, and those are the things our customers tell us they expect from a distributor.

Do you expect margins for channel partners to increase, decrease, or remain roughly the same?

We don't speak to our customers' margin profiles. We run our business.