10 Things You Don't Know About The Tech Data-Avnet Technology Solutions Deal

A Bigger And Better Distributor

Tech Data is beefing up its presence in the data center and in such regions as Asia-Pacific and Latin America with its proposed $2.6 billion purchase of Avnet Technology Solutions (TS).

CRN has fleshed out some of the details of this bombshell transaction, including how long Avnet must hold onto the 2.785 million shares of Tech Data stock it's acquiring, how much money Tech Data is borrowing to pay for the deal, and what's the earliest date either party can terminate the acquisition.

We also looked at how much Technology Solutions contributed to Avnet's bottom line, new vendor partners Tech Data will be able to add to its line card, and how shareholders are reacting to the massive deal.

Here are 10 things you don't know about the planned acquisition.

10. Tech Data Will Cut $100M in Costs In The Two Years After the Deal Closes

Tech Data expects to achieve $50 million in cost synergies in each of the first two years after the deal closes, the company said.

An obvious target for efficiencies will be the back office, where the company plans to combine the SAP systems run by each distributor into a common platform. Having a shared platform will give the company a bit of a running start into the integration process, according to CEO Bob Dutkowsky.

Tech Data doesn't yet know what the cost cuts will mean for partners, but Dutkowsky said the company wants to retain the best elements of each distributor's distinct coverage model.

9. The Deals Unlocks New Vendor Relationships For Both Distributors

For the first time, Tech Data partners will have access to suppliers such as Juniper Networks, F5 Networks, Nutanix and Nimble thanks to Avnet's longstanding ties with the vendors. Tech Data's channel will also be able to go much deeper with IBM, which is Avnet's largest vendor partner and accounts for 11 percent of its overall sales.

Avnet's partners, meanwhile, will be able to go much deeper with Tech Data's largest vendors: Apple, HP Inc. and Cisco. Respectively, they comprised 17 percent, 14 percent and 11 percent of Tech Data's overall sales in the most recent quarter, the company said.

Tech Data works with 600 vendors globally, the company said, while Avnet works with just 40.

8. The Size Of Tech Data's Data Center Business Will More Than Double

Avnet Technology Solutions (TS) will add roughly $8.2 billion of data center hardware and software business to Tech Data, supercharging the distributor's footprint in the data center from just $7.54 billion to $15.75 billion, according to a Tech Data investor presentation.

Avnet TS will contribute just under $1 billion of broadline hardware and software revenue, growing Tech Data's broadline sales – which also includes consumer electronics – from $15.86 billion to $16.8 billion.

Mobility sales for Tech Data, meanwhile, will hold steady at roughly $2.6 billion even after Avnet TS is integrated.

7. Tech Data's Geographic Reach Will Expand From 21 To 35 Countries

Purchasing Avnet's technology business will extend Tech Data's footprint into the Asia-Pacific region for the first time and return the distributor to Latin America after a year's absence.

As a result, the share of Tech Data's overall revenue coming from Asia-Pacific will climb from 0 percent to 3 percent, while the Americas will jump from 39 percent to 44 percent of overall revenue. Tech Data exited Latin America in 2015 by selling its Peru and Chile businesses to Ingram Micro and winding down operations in Uruguay.

Meanwhile, the share of Tech Data's overall revenue coming from Europe will fall from 61 percent to 53 percent.

6. Both Companies' Shareholders Are Bullish On the Deal

Shareholders of Tech Data and Avnet have reacted favorably to the deal since it was announced before the market opened Monday.

Tech Data's stock has skyrocketed by 25.2 percent since the acquisition was announced and is now trading at $86.79 per share. That's the highest price the stock has traded at since going public in May 1986.

Avnet's stock has climbed a more modest 4.3 percent since the deal was announced, to $40.89 per share. After the announcement, Avnet's stock jumped to its highest trading price since Aug. 30.

5. Technology Solutions Contributed Roughly $150 Million To Avnet's Bottom Line

Avnet also painted a clearer picture in a presentation to investors of how its Technology Solutions (TS) business fit into its overall financial landscape.

In addition to $9.65 billion of annual sales, Avnet's TS business contributed $318 million of non-GAAP operating income, between $142 million and $157 million of non-GAAP net income, and between 69 and 79 cents of non-GAAP earnings per share, according to the distributor.

Avnet expects a one-time earnings-per-share gain of between $3.75 and $4.75 when the deal closes in the first half of 2017, the company said.

4. Tech Data Will Take On $2.1 Billion Of New Debt To Pay For Avnet TS

Tech Data will finance the $2.4 billion cash portion of its purchase agreement for Avnet Technology Solutions (TS) with $300 million of cash on hand and $2.1 billion of new debt.

Tech Data obtained a commitment for a $3.1 billion senior unsecured bridge facility - a short-term loan used until a company secures permanent financing or removes an existing obligation - to finance a portion of the proposed acquisition, according to a filing with the U.S. Securities and Exchange Commission (SEC).

In lieu of drawing on the bridge facility, though, Tech Data expects to issue approximately $1 billion in unsecured notes and incur $1 billion in term loans, according to the filing.

3. Either Party May Terminate The Deal If It Doesn't Close Within Nine Months

Either Tech Data or Avnet may terminate the acquisition if the closing has not occurred by 5 p.m. on June 19, 2017, or nine months after the deal was announced, according to an SEC filing.

The deal may also be terminated by mutual consent of both companies, or if a government authority issues a non-appealable action that would prevent the transaction.

The deal needs to receive antitrust approval in the United States, Canada, Colombia, the European Union, Mexico, Switzerland and Turkey, according to the SEC filing.

2. Avnet Will Become Tech Data's Fifth Largest Shareholder

Avnet will receive roughly 7.3 percent of Tech Data's outstanding common stock – or 2.785 million shares – worth roughly $200 million under the terms of the deal.

This will make Avnet the fifth largest shareholder of Tech Data, according to a SEC filing.

Companies with a larger stake in Tech Data than Avnet are: Boston-based FMR, which owns 3.745 million shares; New York-based BlackRock, which owns 3.21 million shares; Malvern, Penn.-based Vanguard Group, which owns 3.069 million shares; and Austin, Texas-based Dimensional Fund Advisors, which owns 2.951 million shares.

1. Avnet Can't Sell Any Of Its Tech Data Stock In the First Six Months After Closing

Avnet has agreed not to transfer any of its 2.785 million shares of Tech Data's common stock for the first 180 days after the acquisition closes, according to an SEC filing.

After 180 days, Avnet may transfer up to 50 percent – or about 1.39 million shares – of its Tech Data stock, according to the filing. And after the first anniversary of the deal's closing, Avnet may transfer all of its remaining Tech Data stock.