A New Distributor Dawns: Tech Data-Avnet TS Deal Closes, Avnet Partners Want To Retain Existing People, Level Of Service

Avnet Technology Solutions partners hope that the close of Tech Data's $2.6 billion acquisition will unlock a broader line card while maintaining access to key pre-sales and marketing contacts.

"Everybody's used to the folks, processes and systems at Avnet," said Kumar Nandigam, director at Plano, Texas-based Tekpros. "Tech Data should retain the folks who know the space very well and have been there a long time."

The closing of Clearwater, Fla.-based Tech Data's acquisition of Phoenix-based Avnet's $9.65 billion TS business was announced Monday morning. The deal will boost Tech Data's share of overall revenue coming from the data center from just 29 percent to 45 percent while more than doubling non-GAAP operating income after cost savings.

[RELATED: Tech Data CEO: Buying Avnet TS Will Help Us Shift From Legacy To Emerging Storage Technologies]

"This is a momentous day in our company's history and we are excited to welcome our talented colleagues at Technology Solutions to the Tech Data family," Tech Data CEO Robert Dutkowsky said in a statement. "Our combined company is perfectly positioned at the epicenter of the IT ecosystem … giving our customers access to an end-to-end portfolio of IT solutions and efficiently bringing our vendors' products to new customers in more markets."

Tech Data also unveiled a new, six-person global operations team reporting to Chief Operating Officer Rich Hume comprised of three Tech Data and three Avnet TS leaders. Hume and Tech Data's existing top financial, human resources, legal and information leaders will remain with the company and continue reporting to Dutkowsky.

The three Avnet TS executives joining the team are: Patrick Zammit, formerly Avnet TS' global president, who is now president of Tech Data Europe; William Chu, Avnet TS' Asia-Pacific president, who is now president of Tech Data Asia-Pacific; and Jaideep Malhotra, Avnet's senior vice president of global computing components, who will become president of global computing components for Tech Data.

Tech Data didn't have any Asia-Pacific presence prior to acquiring Avnet and said in January that European President Nestor Cano would be leaving the company April 1.

The three leaders tapped from the Tech Data side are: Joe Quaglia, Tech Data's president of the Americas, who will remain in his current role; Els Demeester, Tech Data's managing director of Benelux, who is now corporate vice president of integration; and Michael Urban, Tech Data's European senior vice president of broadline, consumer electronics, services and procurement, who is now corporate vice president of strategy, transformation and global vendor management.

All told, the post-acquisition Tech Data will have 14,000 employees in 40 countries serving some 115,000 customers in more than 100 countries. Following the departure of TS, Avnet is now a pure-play semiconductor distributor.

"We have doubled down on our electronic components and integrated and embedded solutions business," Avnet CEO Bill Amelio said in a statement. "We wish our former Technology Solutions' employees well as they start a new and successful chapter of their business history with Tech Data."

Under the terms of the agreement, Avnet has received 2.785 million shares of Tech Data common stock worth approximately $200 million and representing roughly a 7.3 percent ownership stake. Avnet has agreed not to transfer any of its shares of Tech Data's common stock for the first 180 days after closing.

Tech Data shares dipped 12 cents, or 0.1 percent, to $88.52 since the closing was announced at 11 a.m. ET Monday, while Avnet shares dropped 28 cents, or 0.6 percent, to $46.27. Tech Data expects to achieve annual cost savings of roughly $100 million within two years of closing due to technology platform efficiencies as well as duplicative functions and corporate expenses.

Pinnacle Business Systems, No. 392 on the 2016 CRN Solution Provider 500, has until now sourced its storage products from Avnet and routing and switching products from Tech Data, according to Rob Anderson, CEO of the Edmond, Okla.-based company.

Anderson said Avnet has excelled at managed services, automation services and holistic solutions, but was clunky to deal with for commodity products. Conversely, Anderson said Tech Data is strongest around delivering high-volume products and providing support internationally.

"It's going to be nice to source everything from one place," Anderson told CRN. "They can do soup to nuts."

Similarly, Tekpros has worked closely with Avnet around IBM and Oracle for more than a decade, but when the solution provider wanted to establish a Microsoft cloud partnership in summer 2016, it had to turn to another distributor since Avnet didn't support that offering. Nandigam said Tech Data is proactive about on-boarding new partners into its Microsoft program and providing a lot of training.

Nandigam said he's been told that Tekpros will be working with the same people and systems until the post-acquisition transition work is done in midsummer. At that point, Nandigam expects that the Tekpros team will have to learn some new systems, get up to speed on how to process orders, and build new relationships with some of Tech Data's legacy sales and back-office people.

Anderson said he's been heartened to hear that Avnet TS' finance and operations teams will be joining Tech Data, along with three key Avnet TS leaders: Jeff Bawol, Americas president; Denny O'Connell, senior vice president of supplier solutions; and Mark Martin, global vice president of IBM Solutions. IBM is Avnet's largest vendor partner, accounting for 11 percent of overall sales.

Avnet partners have already in recent years had to deal with a reduction in force on the reseller side of the equation, according to one Avnet partner who didn't wish to be identified. The partner said he's gone from having an Avnet rep responsible for covering a single product line to having the same Avnet rep responsible for covering three or four different product lines.

The change, though, hasn't been too bad since the partner has been pleased with the rep currently managing his Avnet account. The partner, though, is a little concerned about things leveling off as Avnet TS gets absorbed by Tech Data.

"Historically, Tech Data hasn't been fantastic to work with, so we hope we continue to get the level of service, attention and value we received from Avnet," the partner said.

Avnet TS has grappled with eroding revenue and operating margins in recent years as data center work goes increasingly off-premise. Technology Solutions sales for the six months ended Dec. 31 fell to $4.38 billion, down 14.7 percent from $5.13 billion a year earlier, while operating margins fell to $147.4 million, down 22.3 percent from $189.6 million last year.

But for Anderson of Pinnacle Business Systems, his only concern is that Tech Data will take a commodity or volume approach to Avnet TS' historic value business. Anderson hopes that Tech Data won't rush anything and will learn how Avnet TS' partners do business before making any significant changes.

Now that the deal is done, Anderson said it'll be easier for Pinnacle to have one set of high-level distribution contacts rather than two, attend one distribution conference rather than two, and rely on just one distributor for key industry communications and insights.

"We think there's a lot of synergy that can come out of this," Anderson said. "I'm hearing very similar stories from both sides, so I'm expecting the acquisition to be as advertised."