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

‘This deal is all about investments in the business and continuing to grow and do more,’ says a high level source. ‘Ultimately we believe the channel, within this complex ecosystem, will be an increasingly important part of the IT market.’

Tech Data To Be Sold

Apollo Global Management shook up the distribution marketplace with the announcement Wednesday that it agreed to acquire Tech Data for $5.4 billion, or $130 a share.

“We think this is a really interesting investment that captures the secular trends of IT spending and growth both in hardware and software,” said a high level source. “Ultimately, we believe the channel, within this complex ecosystem, will be an increasingly important part of the IT market. We think management is phenomenal. They have a great track record of being a proven operators. It’s a well run business.”

While current CEO Rich Hume will remain in place, Tech Data will be taken private once the deal closes. Apollo insiders told CRN its priorities for Tech Data include growing its cloud business and investing in more services for partners.

Who Is Apollo Global Management?

The company behind the $5.4 billion offer is a publicly traded private equity firm with a market cap of $17.1 billion and more than $312 billion under management.

Founded in 1990 by Apollo Chairman and CEO Leon Black and Josh Harris and Marc Rowan, senior managing directors and co-founders, the company has grown to 1,200 employees, including more than 400 investment professionals, working from 16 global offices.

While Apollo considers its core business alternative credit management in which it has $200 billion invested. The company’s private equity arm has $77 billion under management and has owned more than 150 companies since its inception across sectors that include financial services; business services; consumer services; chemicals; natural resources; consumer and retail; leisure; manufacturing and industrial; and media, telecom and technology.

In the last 10 years, Apollo has grown its total assets under management from $46 billion in 2009 to more than $300 billion this year.

A Familiar Name To The Channel

A high level source told CRN the deal came together as a result of the company’s ownership interest in New York-based solution provider Presidio, which is No. 23 on the 2019 CRN Solution Provider 500.

“We should be very familiar to people,” said the source. “We led the investment in Presidio, which we took public. When we were in Presidio, we increased the size of the business by over 50 percent, both organically and through add-on acquisitions so we’re very, very familiar with the channel. That’s one of the reasons we had an interest in Tech Data. Given our investments in Presidio we really got to understand the different parts of the channel, the different players. We’ve built a relationship with Tech Data over the last couple years. We feel really good about this.”

Committed To Growing Tech Data

The deal is structured with capital, not debt, meaning the company is in it for the long haul, said the high level source.

“The equity check is over $3 billion,” said the source. “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. We and the Tech Data management team both believe with high conviction that we’ll have more flexibility to do more as a private company.”

Apollo’s Priorities For Tech Data

The plan for Tech Data is to keep its management team in place while expanding in certain areas it sees as ripe for investment, including cloud and Tech Data’s services business, said the source.

“Growing the cloud business by expanding the depth of the portfolio. Increasing our geographic presence. Growing services. All key parts of the investment thesis. That’s how we capitalize a company so it can be very nimble and flexible to do all of that.”

Said another high level source: “We think this is a really interesting investment that captures the secular trends of IT spending and growth both in hardware and software. Ultimately we believe the channel, within this complex ecosystem, will be an increasingly important part of the IT market. We think management is phenomenal. They have a great track record of being proven operators. It’s a well run business.”

Apollo Was One Of The Rumored Bidders For Ingram

Recently, Apollo was rumored to be in talks with HNA to buy Ingram.

“It’s very different from HNA’s investment in Ingram,” the source said. “Ingram is massively levered. You may not be able to see it from their financial reporting, but as everyone knows HNA put a ton of debt on Ingram so, I think Tech Data has far greater financial flexibility, far less leverage than Ingram.”

Other Tech Companies Owned By Apollo

Apollo has owned other players in the tech space, with a focus on telecommunications, satellite, cable and cell tower providers. In addition to Presidio, the company owns Rackspace Inc., a managed cloud computing company based in Windcrest, Texas.

Apollo also owns Intrado, the new name for West Corp., and completed nine acquisitions on its behalf.

The company has also owned Exela, a location-agnostic global business process automation leader combining industry-specific and multi-industry enterprise software and solutions, which was created through the merger of SouceHOV and Novitex.

Tech Data Has Said It Is Focused On Growing Cloud Business

In October, Tech Data announced that it has teamed up with Cambridge, Mass.-based Akamai to bring cloud-based security products to its partners, increasing the number of recurring revenue options available in this growth area for the managed services market, said Alex Ryals vice president, Security Solutions, North America for Tech Data

“We are certainly not getting away from the traditional firewalls and traditional endpoint security,” Ryals told CRN. “We're very strong in those areas, but we’re certainly investing more in what we see as a growth area in cloud-based security solutions.”

Alan Dorrian, VP of sales at Chicago-based solution provider Impelix, a boutique cybersecurity firm, said it is a growth area for his company as well.

Dorrian said one of the obstacles the company sees to digital transformation among its customers is convincing those customers of the need for cloud security solutions to protect their cloud network. Dorrian said what the offerings from Akamai does is to give solution providers a seat at the table during the security discussion when a customer transitions to the cloud. Dorrian said for solution providers, security is no longer a “castle with a moat around it” as cloud and new ways of delivering content to mobile end points have changed that discussion.

Tech Data Itself Recently Made An Acquisition

Tech Data made a big move last month to expand into the U.S. public sector space when it struck a deal to acquire DLT Solutions, a major provider of IT solutions for federal, state and local governments.

The acquisition brings to Tech Data a significant amount of public sector expertise and capabilities, not to mention DLT Solution’s 50 in-house contract vehicles.

Tech Data said the acquisition will help the distributor’s channel partners better capture opportunities in the U.S. public sector space.

The deal was Tech Data’s first acquisition since its $2.6 billion purchase of Avnet’s Technology Solutions business in September 2016.