CRN Exclusive: Tech Data CEO On Pricing, Line Card And Partner Program Changes Avnet TS Partners Should Expect

Marrying Broadline And Specialty Distribution

Tech Data closed its purchase of Avnet's Technology Solutions business Monday, creating a gargantuan $35 billion distributor with 14,000 employees that does business in more than 100 countries.

Tech Data CEO Bob Dutkowsky spoke exclusively with CRN on the day the acquisition closed about how the $2.6 billion deal will impact pricing and margins for Avnet TS partners, where things stand from an integration perspective, and the long-term vision for the combined partner program.

Dutkowsky also discussed the timeline for Avnet TS partners being able to sell Tech Data's line card, how Avnet TS' IoT business will be affected by longer being part of a semiconductor company, and how Tech Data and Avnet TS were affected by Arrow recently winning $350 million of business from competitors.

Read on to learn more about the new, bigger Tech Data.

How will the acquisition impact pricing and margins for Avnet TS partners?

It's business as usual. We've said to the marketplace, 'If you have contracts in place with TS, Tech Data's going to honor those contracts.' We said, 'If you have a line of credit with TS and a line of credit with Tech Data, your new line of credit is the combined line of credit.' Those are typically the things that resellers get concerned about – 'They're not going to honor my contract or they're going to reduce my credit.' And we've been crystal clear that we'll honor contracts, and the line of credit is the combined line of credit. That is an issue I would suggest the marketplace not be concerned about. Business as usual is really important.

Arrow said they've won $350 million of business from competitors. Were Tech Data and Avnet TS affected?

That is a reality of the distribution business. There are situations where resellers or vendors will decide to alter their route to market; $350 million would be a small number for Tech Data relative to the amount of business that moves back and forth. I'll give you one example with one vendor. We won a $300 million bid. One vendor. One opportunity. One route to market, $300 million just a couple of quarters ago. So you have to talk about all of the wins and all of the opportunities that have moved to different routes to market. To say you took $350 million worth of business is an interesting number. But that really isn't how distribution works.

Where do things stand from an integration standpoint?

When you put two public companies together like this, until 12:01 this morning, we were still competitors. So we were able to do planning at a very high level around how the two companies could come together, but virtually no planning on the vendor relationship side or the customer side because we're competing for business with Avnet tooth and nail until this morning. While we've done a lot of work about the back-office functions – IT, finance, HR, those kinds of functions – at the vendor and customer level, there hasn't been that much planning.

What is the long-term vision for the partner programs?

Our vision today is that there will be centers of confidence. But the brand value to the channel is that end-to-end story. So if you move from one center of confidence to the next, that should be seamless for the reseller, for our customer. We'll keep those capable experts in their swim lanes … so that we have deep confidence, deep skills and deep execution capabilities that those different businesses demand. We can see where in the reseller's office, in their end-user customer's offices, that all blends together. It's more of an end-to-end story, and we'll have that capability in an unmatched way for an IT distributor.

When will Avnet TS partners be able to sell Tech Data's line card, and vice versa?

Over time, there will be opportunities for both the Technology Solutions customers who have traditionally bought data center products from Avnet to broaden their view. We'll bring more products and solutions to them. And likewise, the Tech Data customers who maybe didn't have access to a particular vendor that TS has, we'll bring those to the Tech Data customers. ... But today, it's still business as usual as we bring those pieces together.

How long will partners have to wait before getting access to the full line card?

That will be as rapidly as possible, because we want to bring that value to more customers and better solution capabilities for our vendor partners. Think of two timelines – one timeline says we want to do this as fast as we possibly can, and the other timeline says we want to be as thoughtful as we possibly can. So therefore, it's not a couple of weeks, and it's not dozens of quarters. It's a process that needs to be worked through.

When should partners expects to see the results of implementation efforts?

It's not just going to be tomorrow morning you'll wake up and it will look different. It will be very carefully and thoughtfully modeled and executed. And therefore, it's going to take some time. Don't look for these dramatic changes from Tech Data in the next week or month. Our plan is that this integration process will take several years as we roll out this better, smarter coverage model.

How will Avnet TS' IoT business be affected by no longer being part of a semiconductor company?

Keep in mind that Tech Data already has Internet of Things practices both in the Americas and in Europe on our own. That's one of the things that I find interesting about Arrow's positioning on this. Virtually every other computing environment works because partnerships and solution developing and solution building happens cross-vendor, cross-distributor, cross-platform and cross-architecture. The key is that it works. And IoT is just another manifestation of IT.

Do distributors with a components business have an edge in IoT?

The idea that you have to be end-to-end in that little space doesn't make any sense to me. Tech Data will continue to partner with the leaders in that space, and Tech Data will continue to create one of the premier routes to market for IoT solutions. And it will be via partnerships, like everything else that we've done. So if we need to find a particular partner who has competence in components, for example, we'll find that partner. Just like we always have.

What will you be asking of operations leaders?

When we look at that [operations] team, we have a tremendous amount of confidence in their capability to drive this business model I'm describing, which is very different than the traditional distribution model, which is a very siloed approach to solutions. 'We are in the data center. We are a broadliner.' And we learned from the success we had with Tech Data in Europe. In Europe, Tech Data is the biggest broadliner, the biggest value player, the biggest cellphone distributor, and the biggest software distributor.

What has Tech Data learned from its experience in Europe?

We learned that that model, if managed correctly, gives far more value-add to the reseller community than this siloed approach that exists. Our business in Europe -- at 15 billion euro a year – is a very, very large distribution business than supports the reseller community. So we know that it works. We know how to manage it. We have the IT systems already in place to make that work. We have the management systems in place. We know how to manage that end-to-end model, and we learned it with our European business.

How can those lessons be applied to other geographies?

So now, to roll that out across the world, we know what needs to be done, we know the kind of capabilities that the resellers are looking for, we know the skills that they want a distributor to have, we know the terms and conditions, we know the excellence and execution that they expect. We have it, and we've built that in Europe for the last 10 years. So for us to extend that model around the world, that's what gives us the confidence that we can build the premier IT distributor because we've already done it in a continent.

How was the new executive suite chosen?

We didn't buy Avnet corporate. So we didn't get a CEO, a CIO, a CFO, a CHRO. We didn't get those roles. So that's why you see at the very top of the company, it's basically Tech Data people because we didn't get access to the Avnet people. But the process is, we look at the very best person for the challenge that the job represents, and the kind of skills and competence that they bring, and the lineup you saw is kind of the customer-facing field organization. Those were the very best people that we had access to.

How do you plan to turn around Avnet's operating performance?

As we've gotten to know Avnet, we're totally impressed with their capabilities, with the deep domain knowledge that their people have, with the capabilities of their management team. You can see, for example, we asked [Avnet TS Global President] Patrick [Zammit] to run our biggest single operating unit, which is Europe. So we like everything that we've seen. But again, we have not been able to spend the time or the energy to answer the question you're asking.

What needs to be done to better answer that question?

The next steps will take some time. We have to have time to go understand their business and see where the places are that we can help them improve, and they can help us improve. Because there's things that they do, as we've looked at their business model, that they do better than we do. So that's why one plus one will equal three here when we're done.

How will the combined company be positioned in the marketplace?

We'll have nearly $35 billion in sales, we'll do business in 100 countries, we'll have 14,000 employees, we'll be a Fortune 80 company. There's a lot of things that need to be thoughtfully done to be able to deploy that company and create value for our shareholders. We're in the process, and we're really comfortable that we know how to do this work.

How will partners benefit from the close of the Avnet TS acquisition?

The real value proposition of putting these two businesses together, though, is we believe we'll be able to fill out this vision of an end-to-end distributor. You read our stuff and it says 'from the living room to the data center.' And the reason that's important is when you look at technologies today, they cross boundaries. They're not siloed like they used to be. The day of a data center distributor or the day of a broadline distributor – those are over. The products and technologies now have business purpose, or they change the way people live and learn and work. There are no silos in that anymore.

How will this deal help achieve that end-to-end vision?

We believe the distributor of the future needs to be able to bring a broad array of products and solutions, and to have the real confidence that's necessary to be able to advise the reseller who serves their end user. They need to turn to their distributor to get business outcome and capabilities. From our perspective, by combining ourselves with TS, we bring that end-to-end capability. And now we have dramatically more skill to offer. So it's a very different value proposition.

Was it tough convincing Avnet TS partners to stick around through Tech Data's acquisition?

No, it's not a tough sell. What the customer wants to know is how you're going to deal with the contractual relationship they had in the past. We've made that very clear. They want to understand how you're going to deal with credit. We've made that very clear. And then they want to understand what's the vision for the new Tech Data. And that's the capability to bring end to end more products, more solutions with deeper skills.

How do partners feel about having broadline and specialty distribution under one roof?

They say, 'Well then, I should do business with Tech Data, not a distributor where if I buy these products, I go to that distributor, and if I buy these products, I have to go to another distributor with more contracts and another line of credit.' And it becomes that the reseller spends more time managing their distributors than they do serving their customers. So with Tech Data and our one-stop, end-to-end capability, we become the distributor of choice. That's what I hear. I don't hear this, 'I'm going to buy this from this distributor and that from that distributor.'

What do partners say about the new Tech Data value proposition?

I hear, 'Wouldn't it be great if I could go to one place and source all of the products and solutions that my end customer needs?' And it was backed by services and support and consultative capabilities that help me serve my end-user customer? And when they look at the new Tech Data, that's what they see. They see a very different model than the model that existed prior.

Is Tech Data receiving any outside support?

We've engaged a couple of world-class consultants from the very first day. They've been on-site with us day in and day out, helping us build the plans that we'll execute. They do this for a living. This is a transformational activity for Tech Data and TS, but the consultant companies do this every single day. They know all of the difficult questions to ask. They know all of the things that can go wrong. They know all of the things that need to be done to make it right. We're not in this by ourselves. We have engaged some very, very capable and talented consultants to help us build the plans and execute the plans.

How will TS and Advanced Infrastructure Solutions be brought together in North America?

They [Avnet TS and Tech Data's Advanced Infrastructure Solutions division] are far more complementary than you would think. Although AIS has a nice, robust business in the Americas and TS has a robust business in the Americas, in many cases, they have different customers. There's not as much overlap in the Americas as you might think. And yet, TS has some vendor relationships that Tech Data doesn't have, and some of TS' customers might be interested in some of the broadline products that Avnet hasn't had access to.

When should current AIS partners expect to see changes?

That opportunity to create a robust coverage model with more solutions capability, both for the Tech Data customers and the TS customers, is absolutely real. But because we were competitors up until midnight this morning, we haven't been able to dig into that at the customer level nearly to the degree that needs to be done. So that's where we're going to need the time now to do that work and make sure that, at the end of the day, one plus one has to equal more than three. And absolutely, positively, the opportunity is there for us to do that.

What are the key steps and milestones in the integration process?

The most important thing, and the fundamental premise behind all of that dialogue between Tech Data and TS, is to not disrupt the customer or the vendor. That's the premise. And then from there, we'll work very carefully and very proscriptively to make sure that we build a coverage model covering the resellers and covering the vendors that positions the new Tech Data to add even more value. To be more responsive, to have better coverage.

What changes can partners expect to see right away?

What we're telling our customers and vendor partners is 'it's business as usual.' Whatever they were doing with Tech Data or Avnet – and customers or vendors before – can carry on. We're really working hard to make sure it stays business as usual through this transition.