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Clearwater's Tech Data Corp. to buy technology business for $2.6 billion

Published Sep. 19, 2016

Tech Data Corp., already Tampa Bay's largest public company, could become the largest company in Florida under a mega-deal announced Monday.

The Clearwater-based firm — which distributes IT products from iPhones to computer servers to software — is buying the data center business belonging to Avnet, a technology distributor based in Phoenix.

The $2.6 billion acquisition of Avnet Technology Solutions is not only the largest in company history, but a landmark for Tampa Bay business overall, Tech Data CEO Bob Dutkowsky said in an interview with the Tampa Bay Times.

Currently, Tech Data has about $26 billion in annual revenue. With the acquisition, it will become a $35 billion company with 14,000 employees. That puts it in the same territory as Lakeland-based, privately held Publix Super Markets, which in 2015 ranked as Florida's largest company with $32.4 billion in revenue.

"We'll be a Fortune 80 (company) now — bigger than American Express," Dutkowsky said, alluding to CNBC Mad Money host Jim Cramer's description Monday of Tech Data as a "powerhouse" in technology.

"To have a really big robust company like this (here) has got to put the Tampa Bay business community on the map," Dutkowsky said. "It's not Miami; it's not Orlando. It's in Tampa Bay."

Tech Data would remain the second-largest computer products distributor in the world behind California-based Ingram Micro — which is itself being acquired by a Chinese shipping company — but it would be a much closer No. 2.

Dutkowsky called the deal a "transformative transaction which creates a premier global IT distributor with the most diverse end-to-end solutions from the data center to the living room.

"The tech world has been watching our space waiting for somebody to make a big step," added Dutkowsky, who celebrates his 10th anniversary running Tech Data next month.

Tech Data's "space" is vast. It represents more than 1,000 manufacturers in distributing more than 75,000 products, including product lines in software, networking and communications, mass storage, peripherals and computer systems. It also provides training, service and support for customers.

Among the companies who have used Tech Data to distribute their products are heavyweights like Apple, Cisco, HP, IBM and Microsoft.

Tech Data recently expanded its Clearwater headquarters and, though it may add some employees here as a result of the merger, it plans to keep Technology Solutions' Phoenix offices. The West Coast operation will extend its business day in the United States, letting it serve customers at later hours.

Technology Solutions has about 5,000 employees worldwide, including the Asia-Pacific market, which will be a new one for Tech Data. Until now, Tech Data had been focused on two geographic areas: the Americas and Europe.

Though Asia has long been a missing geography for Tech Data, Dutkowsky said getting a footprint there was only part of what made the deal attractive.

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One of the biggest incentives was opening the door to more customers buying equipment for data centers, an area that accounts for about $8 billion in business for Tech Data. Technology Solutions' customer mix also helps Tech Data get a greater balance geographically. Currently, about 61 percent of its business is in Europe and 39 percent in the Americas. The new mix will be: 53 percent in Europe; 44 percent in the Americas and 3 percent in Asia-Pacific.

The acquisition comes at a time that Tech Data and Avnet are looking for a boost. In the most recent quarter, Tech Data missed analyst's expectations and it forecast a slower IT spending environment ahead, both in Europe and the Americas. Avnet, meanwhile, has been under pressure to improve and recently put in a new CEO.

Alex Smith, who leads a team tracking vendors and IT distributors globally for research company Canalys, said Tech Data saw Avnet as undervalued "and therefore a relatively cheap purchase for them."

The deal, he said, gives Tech Data new vendors and new technologies to distribute — particularly new technologies used in data centers — with minimal overlap of customers.

Smith predicted that consolidation among distributors would continue as slowing sales and lower prices across many product lines put more pressure on the industry.

The acquisition is expected to save Tech Data about $100 million annually within two years.

Moody's Investors Service affirmed Tech Data Corp.'s Baa3 senior unsecured rating, but changed the company's rating outlook from stable to negative as Tech Data indicated it was borrowing from Bank of America Merrill Lynch to help pay for the deal.

Investors, however, showed little concern over debt in quickly embracing the deal. Shares in Avnet rose nearly 7 percent Monday while Tech Data's stock shot up 22 percent to close at a record high of $84.80 a share.

The deal is expected to be completed in early 2017.

Contact Jeff Harrington at jharrington@tampabay.com. Follow @JeffMHarrington.

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