Why Avnet — Arizona’s Highest Revenue-Generating Company — Is Selling Nearly Half Its Business
Whether it’s Microsoft buying LinkedIn, Bass Pro Shops looking to take over Cabela’s or Google eyeing Twitter, mergers and acquisitions involving U.S. companies are on pace for the second biggest year since before the recession. One of the billion-dollar deals involves Arizona’s highest ranking company on the Fortune 500.
When Russian immigrant Charles Avnet started his business 95 years ago, he sold radio parts to customers in New York City. Since then, Avnet has undergone numerous transformations, diversifying and refocusing as technology and economic climates changed.
By the time Avnet moved its headquarters to Phoenix from New York state in 1998, it had grown into a global electronics distributor by acquiring dozens of other companies.
Today, Avnet is the one being acquired — at least 40 percent of it. A Florida-based company called Tech Data plans to buy Avnet’s Technology Solutions unit, which provides IT support to customers and vendors in more than 80 countries. Tech Data will pay more than $2.5 billion in cash and stock.
“I think people were like, 'What does this mean for us?' Vendors were saying that and other distributors,” said Pam Miller, research director at International Data Corporation. “When everybody kind of calmly looks at it and thinks about the pros and cons it’s very much a very positive deal for everyone.”
While Avnet’s 2016 fiscal revenue topped $26 billion, it was 6 percent less than the year before. Lower sales and problems rolling out new computer software are mostly responsible. Selling its Technology Solutions Unit is expected to reduce Avnet’s annual revenue by about $9 billion.
“This shouldn’t surprise us that Avnet’s doing this,” said Dr. Gary Gibbons, associate professor at Thunderbird School of Global Management.
He calls the sale to Tech Data a strategic move.
“They’re getting rid of something they’re good at but that Tech Data is probably better at and they’re lowering their overall debt," Gibbons said.
During a conference call, CEO Bill Amelio said Avnet’s not just selling — it’s buying, too, spending $900 million to acquire Premier Farnell, a British-based distributor. The goal is for Avnet to grow its digital reach in its components unit, which makes up 60 percent of its current business and generates higher margins.
Amelio said there are no other acquisition opportunities far enough along that he’s willing to talk about, but would say, “The world is essentially collapsing. We’re seeing consolidations happening all over the place and there are therefore opportunities that are popping up, but we want to do it in a very prudent way.”
Maureen O’Leary, Avnet’s media relations director, said the sale of the Technology Solutions unit is expected to be finalized before next summer and will impact 5,600 workers worldwide, including 635 in Arizona.
“All of them won’t be let go, but some of them will,” Gibbons said. “Knowledge of Avnet’s Technology Solutions Unit is going to have to go to Tech Data and the only way it can knowledge-wise is through its employees. But ultimately in the end Tech Data will be the owner and operator of that division so they might make their own decisions.”
Tech Data’s Director of Corporate Communications Brian Kosoy said they’re limited in what they can say before the deal closes, but “an integration management team, comprising members from both Tech Data and Avnet Technology Solutions, is currently being assembled.”
Gibbons predicts it will take two or three years to fully integrate both companies. A period in which he said the tech industry will likely see more consolidation.
“Twenty-five to 26 percent of all mergers and acquisitions for the last few years have been in the tech area,” he said. “Tech firms are always looking for ways to improve their specialization to gain access to the most efficient technology so there’s always a lot of upheaval in the tech arena.”
EDITOR'S NOTE: The story has been modified to reflect the year Charles Avnet began his business.