After a week of frenzied acquisition activity, the distribution sector could be set for another period of consolidation, with the big guns seemingly switching their M&A focus from volume to value.
Ingram Micro closed one of its largest-ever acquisitions with its $840m (£535m) buyout of BrightPoint, a mobility giant with 4,000 staff and sales of $5.2bn. Meanwhile Avnet extended its EMEA footprint and added some blue-ribbon partnerships, including Dell and Cisco, with its buyout of $530m-turnover Magirus.
On the same day, rival Arrow closed its acquisition of pan-European VAD Altimate Group, which boasted sales of $340m and 250 staff.
Westcon was another US heavyweight getting in on the acquisition act, buying Afina, a security player with presence across Iberia, Latin America and North Africa.
Alain Monié, chief executive of Ingram, hinted that the big four US distributors - including his own firm, alongside Tech Data, Avnet and Arrow - may kickstart another period of heightened consolidation.
“I think consolidation has a good chance of continuing,” he told ChannelWeb. “This is a business where size and coverage count [in order] to be effective, to offer reach to the vendors. And so I think we will see continuing consolidation.”
The Ingram chief (pictured) stated that a higher-margin, more specialised player such as BrightPoint fits “the profile of what we would continue looking at”. Other opportunities will follow but, owing to the size of the BrightPoint deal, “the level of activity or aggressiveness may take a different profile in the next 18 to 24 months”.
“We are going to look at investing in higher-margin areas. There is always the challenge between doing more of the same and diversifying,” he said. “As we are now, we already have a very large footprint through traditional distribution.”
Buying into niche areas
Graeme Watt, corporate vice president of Avnet, predicted that pressure from vendors or the difficulties of surviving as a smaller player would prompt more consolidation moves.
“[Consolidation] is continuing and will continue,” he said. “I think either suppliers will drive it or the disties will see over a period of time that they do not have the finance, line-card or support of suppliers to survive long term.”
Barrie Desmond, group marketing and global accounts director at VAD Exclusive Networks, predicted that the litmus test for the big four will come when they buy into more niche or specialised services.
“Magirus is a comfortable acquisition for Avnet,” he said. “Outside of that - and [this is] where it will place its emphasis in the coming months and years - is the higher-margin business. I would not describe Avnet as a broadliner, though it is high volume. But it is really now interested in going out and looking for higher-margin services.”
Dave Ellis, director of new technology and services at Computerlinks, claimed that hanging on to the right people is as important as keeping hold of the flagship franchises.
“Avnet needs to be careful that it holds onto the people who made the business good,” said Ellis. “Obviously it is buying the vendor contracts, but it is also the people. It will be interesting to see what it does.”
The loss of key people, whether senior management or rank-and-file employees, is always a concern for resellers when a long-standing distribution ally is subsumed by a larger rival.
Storage VAR 101 Data Solutions has worked with Magirus for a number of years, and managing director Brett Edgecombe explained that he wanted information on what the future holds as soon as possible.
“We have made quite a bit of investment in doing co-marketing with Magirus, [and spent] a lot of money; we have some concerns around that,” he said. “Avnet is a huge goliath and its structure works in a very different way to Magirus.
“We know pretty much all the members of staff [at Magirus]. When we want something answered, we pick up the phone and call someone’s mobile. We have a dedicated account manager there - at Avnet that person may be spread across 20 other resellers. We want to keep the relationships that we have.”
Leeds-based reseller SICL has also worked with Magirus for several years.
“We have never really dealt with Avnet,” said managing director Cliff Fox. “There might be some efficiencies or streamlining; we will see what happens. But it is not a big issue; we are pretty self-sufficient.”
A question of motivation
One industry onlooker, who wished to remain anonymous, argued that consolidation from big distributors is not necessarily driven by the desire to boost their value-add skills or regional presence.
“The acceleration of acquisitions by major listed distributors, particularly in the past two years, has little to do with geographical footprint or increased technical competence - these are there in abundance already,” said the source. “In the face of static or declining underlying component or volume product sales, it is more often driven by a need to show top-line growth, additional margin basis points and retained earnings per share.
“Hoovering up specialist distributors provides the feed to achieving this in the medium term, but it comes with longer-term issues that need to be addressed.”
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