Top five talking points from the Tech Data-Synnex mega merger

CRN brings five key talking points and big questions from the $7.2bn deal

Tech Data and Synnex announded their intentions to merge today in a $7.2bn deal that would make them the largest distribution on the planet by revenues.

CRN breaks down some of the key talking points and poses some of the big questions left unanswered from the blockbuster merger:

Why did Apollo sell up so quickly?

Tech Data's majority ownership under Apollo Global Management has been extremely brief and short lived. Its sale to the private equity firm only completed in July which means Tech Data has spent less than eight months under Apollo's wing.

Apollo's move to offload part of Tech Data after less than eight months is highly uncharacteristic for a private investor.

Most private investors will spend three to five years growing their investment - usually before taking it public in what they hope will be a sizable valuation.

But there's no doubt that Apollo has nonetheless made a pretty penny from the Tech Data business during those seven months. Apollo originally bought Tech Data for $5.4bn and is now selling the business on to Synnex for $7.2bn. That's no small pocket change.

And of course Apollo still retains a 45 per cent stake in the Tech Data business, so its sale to Synnex should certainly not be seen as an exit from the private equity investor. Apollo might even have the option to increase and decrease its stake in the distributor as it sees fit.

Did the Covid pandemic push them together?

"It's probably a fair assumption to make that if the pandemic hadn't happened, this deal wouldn't have happened in the same way that it has," said Canalys chief analyst Alistair Edwards.

The pandemic has benefited volume distributors like Synnex because it created huge demand for devices and accessories to aid home working.

Meanwhile Tech Data has been shifting its business away from volume and more towards its Advanced Solutions business in recent years and focusing on high-value IT infrastructure.

Tech Data's growth has been impacted as a result of the pandemic as infrastructure projects ground to a halt, while distributors more centred around volume began to thrive.

"Tech Data's top line has been impacted by that… They're not growing as a company whereas all of their competitors are growing," said Edwards.

"In a scenario of product shortages, volume scale, volume strength and purchasing power are absolutely key," he added.

"They are missing out on some of the growth in the market because they've pivoted towards the Advanced Solutions business. That is inevitably going to have an impact on their top and bottom lines.

The deal with Synnex will help "rebalance" Tech Data's business and bring some volume back to its sales mix.

I think there's a recognition that Tech Data needed to rebalance its business where, at the same time, Synnex gains a significant Advance Solutions business. There's a big growth opportunity they need to capitalize on in the future, when enterprise infrastructure and enterprise solutions business comes back. So from both sides, they're addressing those gaps."

Does the deal signal a vote of confidence for distribution?

"It's a ‘wow' moment for sure and huge news for distribution," said Westcoast MD Alex Tatham.

"It shows once again that the value of distribution just keeps going up, and up and up."

Distributors have been fetching huge price tags in recent years. Alongside Tech Data's $5.4bn sale to Apollo, Ingram Micro was similarly acquired for a whopping $7.2bn by Platinum Equity in December.

And the latest deal between Tech Data and Synnex, also valued at $7.2bn, just goes to show that the distribution space is as attractive as ever.

"It is exceptionally positive to see this move which yet again demonstrates the huge value of a distribution business in both the private and public markets," added Dave Stevinson, CEO of distributor QBS Technology Group.

"Highly sophisticated investors such as Apollo have done a tremendous value in identifying and then capitalising on the intrinsic and undervalued assets in leading distributors."

"I know first-hand as the owner of a privately owned trade-only delivery platform exactly how hot the distribution space is in the technology sector; it has never been a better time to be in distribution."

Edwards added that Apollo's decision to sell the Tech Data business so quickly after buying it shouldn't be seen as a sign that it was now seeing distribution as a less lucrative business to be in.

"I certainly don't think it's as an indication that the value of distribution is in some way declining, I think the alternative is happening. The valuation is going up and the role of distribution is more critical than ever."

Which distributor's brand will take precedence?

Synnex and Tech Data claim that they haven't even embarked in discussions related to branding or where the head offices of the merged entity will be. Nevertheless, the announcement has caused some to speculate on which brand will remain and which will be subsumed in the future.

While Synnex is a strong brand in the Americas, the Tech Data name has by far more brand recognition in EMEA.

Will we eventually see the Tech Data brand be replaced with Synnex in the EMEA market, or will the merged entity operate different brands in different markets?

"It is big news, but not so much for the UK and Europe. I don't think it will affect the European part of the Tech Data business too much," said Tatham. "Tech Data are fairly automonous in Europe and Europe used to be the biggest part of Tech Data's business of course. They've got a very clear direction and I can't see this changing that."

"It's not as straight forward from a branding perspective. Obviously Synnex is not known in the same way certainly outside EMEA, whereas Tech Data has very strong brand strength there. So all of these things will need to be taken into consideration," said Edwards.

Will the deal face anti-competition obstacles in the US?

Both Synnex and Tech Data are mammoth businesses in their home markets. Tech Data logged $16bn in sales for its Americas business in its fiscal 2019 while Synnex posted $24.7bn in sales for its fiscal 2020.

With such gigantic stakes in the US market, the deal could face delays and obstructions during the regulatory process.

"I think there'll be a lot of scrutiny on this deal, because it does give both companies quite significant increase in their share in certain markets," said Edwards.