CRN Exclusive: Avnet President On How Becoming Part Of Tech Data Will Benefit The Channel

Unlocking Greater Scale

Avnet has opted to unload its $9.65 billion Technology Solutions business to volume distribution powerhouse Tech Data as the Phoenix-based distributor looks to double down on its semiconductor business.

Avnet Technology Solutions (TS) President Patrick Zammit spoke exclusively with CRN about how becoming part of Tech Data will affect margins, sales and technical support, unlock greater scale and a deeper line card, and accelerate investment around next-generation technologies.

Zammit also discussed why channel partners should remain with Avnet, the potential financial consequences of switching to another distributor and what will happen to Avnet's top leadership once the deal closes in the first half of 2017.

Will partners see lower margins as a result of the deal?

From a financial standpoint, there will be no change because of the deal. As a distributor, our goal is for our partners to maximize their growth and their profitability. This deal is clearly not going to be a threat to that.

W hat's the benefit of the acquisition if the organizations are being kept separate?

We have these next-generation technologies that are getting more and more traction in the market. That means that you have legacy technologies commoditizing. From a macro-trends standpoint, there are some very big trends in the market. So when you look at what Tech Data is doing – which is very interesting – it's going to be the sole player that's going to be able to go to market with two value propositions: a value model, and a volume model. That's going to give our partners flexibility. Now, they have access through the same type of company to the two models. And that's very unique.

What will change as the companies come together?

The sum of the two companies brings critical mass. In the market, we are now going to be able to go to market with a significant value proposition because of the scale we are gaining through the acquisition and through the integration of the two businesses. A very unique value proposition – value and volume together, under one roof. Still, recognition that the go-to-market strategies have to be different. The value propositions will be different. They [Tech Data] has this model today successful running in EMEA, and the same will happen in the U.S. It's a wider offering for our partners. It's a richer value proposition. It's access to a wider line card. We are excited on the Avnet T S side by the deal.

Can Avnet's IBM and HPE partners source through another distributor?

They always have the possibility to switch. So they may be financial consequences for them, but partners always have the possibility to switch. Our partners have been with us for a very long period of time for a reason. It was the quality of the relationship, the quality of the support provided by the team, the quality of the line card. All that is not changing. All that is going to be maintained.

Will there be financial consequences for an Avnet partner switching their relationship to Arrow?

The financial conditions are linked to the programs that are put in place by the vendors, not by us. There may be some limitations in terms of rebates, and things like that. This is vendor-driven. We never penalize our partners when they move. I suppose we are disappointed, and that's the reason that what the partners have enjoyed, they will continue to enjoy it. And being part of such a large corporation, I think, in fact, we will be able to better serve our customers. From a credit standpoint, from a solution standpoint, we will have a richer value proposition than before.

Why should partners continue to source through Avnet?

Until closing, we will continue to compete in the market. But post-closing, I strongly believe that the integration plan which will be put in place is going to secure what made Avnet successful in the U.S., what led the partners to come to us. So, of course, partners have the choice to move, but I think that because of the plan, partners are going to see not only that what they like at Avnet is going to be secure, but most importantly, we will be able to come to partners post-closing with new solutions and new vendors, which I think partners will appreciate.

Will top leadership be staying with Avnet post-closing?

Tech Data insisted that the whole team is moving to Tech. Again, they are buying a distributor, and what makes a distributor successful is the team. It's very clear that they are going to pay a lot of attention to retaining the key players. We don't know yet what roles we are going to have. This is now the work that's going to happen in the coming months. But we think that Tech is going to retain the key leaders at Avnet … I am TS. I am part of the deal, and I am moving to Tech, and I am very happy to do so. This deal is opening up some great opportunities for TS and the team.

Where do you feel the biggest greenfields are for Avnet partners?

We've launched our specialized business unit approach, so basically five specialized business units, each of them bringing solutions to the market. We know that Tech Data likes this approach a lot. One of the things we're working on as we speak is to add some vendors to our line card. This acquisition is going to give us access to vendors quicker than we would have expected before. So that's going to be one of the positives of the deal.

How does Tech Data's data center business differ from Avnet's?

The key difference is more in the line card. They are very strong, for example in networking with Cisco; we are not present. We are very strong in the data center; they have some presence. I would not say we have a different go-to-market. It's more of the scale. We had a different scale in the market. We are a $6 billion business in North America. We have a historic presence in the value business. So I would say the sum of the two gives us scale in the market. This is the big benefit, in particular for Tech Data. We can get scale together.

How does becoming part of Tech Data position you to compete against Arrow?

If you look at the picture of Tech Data having a value division and a volume division -- so the value division is going to get some more critical mass, and we'll continue to compete in the value space. We have our specialized business unit approach, which will not change here. The goal of the new organization is to accelerate winning around next-generation technologies, and indeed, competing with Arrow in that space. This project is not going to change that focus.

How will the deal improve your position around next-generation technologies?

We absolutely need to deliver to our partners the next-generation technologies, and I believe there will be a lot of continuity with the integration plan. We are going to accelerate the execution of the strategy because of what Tech Data is going to bring to the party. I'm not expecting disruption. I'm expecting acceleration of the actions we have been undertaking. Tech Data is absolutely focused and committed to IT distribution. And they are absolutely committed to invest where it makes sense. And that's something that's extremely valuable to TS.

What will be the key impact of this deal on channel partners?

Avnet is going to become a pure player in the components business, with all TS moving to Tech. We are going to keep the value model and volume model separate. That's very important for the partner community. That was one of the main motivations for Tech, who knows value business really well. In EMEA, they have a very strong [value] presence. They also have a good presence in the state, but of course, TS brings to them a significant position in the market.

Will partners see any disruption as a result of the deal?

They are buying a team of people. They value our solution approach, they value the skills we have. So the integration process is most probably – again, it's something that's in progress – going to secure the Avnet TS value proposition. So that means that our partners and our vendors will see very little disruption. On the contrary, we believe that by bringing the two companies together, we are going to be able to deliver more solutions to the partner community.

How will keeping the value and volume distribution models separate play out?

For the moment, we don't have any details. I just know that they have announced. In Europe, I know that they are running two separate organizations. So most probably that's the way they're going to set it up in North America. We don't know more at this stage. In the last week, the focus was really on due diligence and getting the deal closed. For integration plans, we have some high-level guidelines, but no more than that. But the commitment of Tech Data is very clear.

What made Avnet TS appealing to Tech Data?

One of the reasons they bought TS is really to become a unique type of player in the market which is able to provide not only data center solutions, but also all the devices that go to the home or go on the desk of the users, so that's very unique. They understand that the models are different, and we believe that is going to be reflected in the organization. In the U.S., Avnet has significant size. We believe that it will have a positive impact on the future organization in North America.

What is your main message to partners?

The main message to them is that the sum of the two companies is going to bring them even more value than before. There will be very little disruption because of the integration, and there will be a lot of new opportunities for our partners to deal with us. It will give them new opportunities for growth, thanks to the combined deal. Stability and some new opportunities for growth are the two key messages we are passing to partners.

Have you spoken with senior leadership at IBM and HPE?

Between Tech Data and I, we're spoken to all our key vendors. And the reaction is very positive. They see that they're going to a truly global partner who is going to bring their products and solutions to their market globally. We have some geographies on both sides where we are not present, so now our geographical coverage and line card coverage is really excellent.

What will the economic impact be for legacy IBM and HPE partners?

We are here to help our partners grow. With that deal, we will be in an even better position to help them grow, and that's extremely important. Based on that feedback I have received so far from our key partners, and for sure from our vendors, that's the way they are perceiving this deal.

How do the cultures of the two companies align?

The cultures of the two companies are very compatible. All of our vendors said 'you have very compatible cultures,' and in the integration process, this is going to be a key success factor. They see two companies that are complementary and compatible from a value proposition and go-to-market standpoint, so they see that bringing one plus one together is going to make more than two. So high level, that's the feedback that I have received, so that's extremely encouraging. On the partner side, the feedback was also good. They see the opportunity that is going to come from the two companies coming together. So I must tell you, all positive.

What does this deal mean for you in EMEA?

The deal is also very positive for us in EMEA. If you look at our presence in EMEA, there are areas where we are very strong, but there are some countries where we're not present. We are missing scale. But when you bring the two companies together, we are now a truly Pan-European value distributor with a consistent line card. Our vendors are more and more going to look at partnering with distributors who are able to deliver to them regional coverage – so EMEA, North America, Latin America, APAC – if not global coverage. It's very clear, as the market commoditized, that's what our vendors are going to look at. It's very unique – Tech Data's value proposition in the market today is very unique.