Synnex-Tech Data Deal To Put Heat On Ingram Micro: Partners

‘You have customers that are sitting out there who might or might not have had a good experience with Ingram who are on the edge. And now you have the power of two versus the power of one,’ says Michael Goldstein, president and CEO of LAN Infotech.

Tech Data’s megamerger with Synnex puts a full-court press on Ingram Micro as the newly combined entity will become the world’s largest IT distributor, according to solution providers.

“This definitely puts the pressure on Ingram,” said Michael Goldstein, president and CEO of LAN Infotech, a CRN Security 100 MSP based in Fort Lauderdale, Fla. “You have customers that are sitting out there who might or might not have had a good experience with Ingram who are on the edge. And now you have the power of two versus the power of one. … Taking two big programs and putting them into one really just helps us as MSPs to have a further choice that’s out there. This is big, exciting news for us.”

Tech Data’s proposed $7.2 billion merger with Synnex will create a $57 billion distribution behemoth, which would be nearly $10 billion larger than Ingram Micro, which reported $47.2 billion in sales in 2019. The new Tech Data and Synnex company, which has yet to be officially named, will have more than 150,000 customers and 22,000 employees.

“If you’re sitting at the top, whether it’s a sporting event or a leader in a certain market, being No. 1 is never easy. It’s hard to keep up there and there’s always guys trying to chop you down,” said Goldstein. “I think you’re seeing that here.”

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The deal sets up a heavyweight battle between Tech Data-Synnex versus Ingram Micro, said Martin Wolf, president of martinwolf M&A Advisors of Walnut Creek, Calif., one of the top technology services investment advisory deal-makers.

“This is a heavyweight fight, kind of like [professional boxers] Tyson Fury versus Anthony Joshua,” said Wolf, referring to the upcoming boxing match of heavyweight standouts for the world heavyweight championship. “One’s a boxer and one is a puncher. We’ll see what happens. Styles make fights. In this case, you have the best operator in the business which is Platinum Equity Partners going against the larger asset which is Tech Data-Synnex.”

The deal comes with Ingram Micro in the midst of finalizing a deal to be acquired by Los Angeles-based private equity firm Platinum Equity Partners for $7.2 billion. “That is a distraction,” said Wolf of the Platinum Equity transaction with Ingram. “On the other hand, Ingram has as good if not the best private equity in the space which is Platinum. Platinum will extract value from Ingram. They won’t put up with excuses.”

Tech Data is owned by Apollo Global management, which bought Tech Data in June for $5.4 billion, while Synnex is a publicly traded company. The new combined company will be 55 percent owned by Synnex shareholders and 45 percent owned by Apollo Global management.

CRN reached out to Ingram Micro but had not heard back at press time.

The Ingram deal – when completed - ends four years of ownership by HNA Group, a massive Chinese air carrier that embarked on a heavily leveraged acquisition binge that has since hobbled its growth and forced it to divest property as it struggles to make payments on its debt. HNA told Chinese regulators in May that it missed a $750 million payment on a $4 billion loan that was used to buy Ingram Micro.

The cost benefits of Tech Data-Synnex are going to be significant, said Wolf. “The financial benefits of the deal are huge,” he said. “It’s a huge deal, it’s not a cost take out deal, it’s a marketing deal with cost takeouts. Apollo is brilliant.”

Wolf said the blockbuster deal creates a potent combination given the strength of Synnex over the years. “Synnex has been the best run and the most insightful distributor,” he said. “They transformed the business over time, they have done smart M&A. (Synnex Founder) Bob Huang created a great company. (Former CEO) Kevin Murai was a great leader and they built a great company.”

Wolf said the deal will lead to higher margins for both Tech Data and Ingram given that partners will not have as big an opportunity to play one distributor against another.

“Profitability of both Ingram and Tech Data will go higher and their costs will go lower, so it’s win-win for distribution,” Wolf said. “There is going to be less competition.”

Bob Keblusek, chief technology officer at Downers Grove, Ill.-based Sentinel Technologies, said he expects the merger to impact how channel partners select their preferred IT distributor going forward.

“Obviously, there has to be significant Tech Data and Synnex overlap in what they do, but they evaluated their businesses and decided there’s a lot of synergies as well. So it’s very interesting what will come next,” said Keblusek, who partners with Ingram, Tech Data and Synnex. “It’ll be interesting to see how they now compete with the Ingrams and the Arrows of the world.”

Keblusek said distributors are just as important as ever to channel partners especially with consumption-based services being top of mind. Having a successful Tech Data and Synnex combination could reshape the distribution market landscape.

“When we choose who we wanted to have as our preferred distributor for cloud, for example, it very much came down to the process, the billing and those type of things,” said Keblusek. “So I’m very interested to see what new service offerings that they’re going to bring to the table -- that’s as important as anything. This is exciting news.”

The companies said they’ll provide best-in-class product offerings in high grow product segments such as cloud, data centers, security, Internet of Things, services, 5G and intelligent edge. Synnex and Tech Data said they’ll benefit from highly complementary product line cards and the ability to bring comprehensive Everything-as-a-Service offerings to the market.

“This is transformational for Tech Data, Synnex and the entire technology ecosystem,” Tech Data CEO Rich Hume said in a statement. “Together, we will be able to offer our customers and vendors exceptional reach, efficiency and expertise, redefining the experience and value they receive.”

The Tech Data and Synnex merger is expected to close in the second half of 2021, and generate $100 million of optimization and synergy benefits in the first year after closing and some $200 million by the end of the second year, the companies said.