Electronics distributor Tech Data Corp. (NYSE: TECD) announced Monday that it has agreed to acquire the Technology Solutions business of Avnet Inc. (NYSE: AVT) for $2.4 billion in cash and 2.785 million shares of Tech Data’s common stock. The total value of the deal is about $2.6 billion, and Tech Data expects a tax benefit of $200 million in present value tax benefits.
On a pro forma basis for the 12-month period ending July 31, the combination would have raised Tech Data’s revenues from $26 to about $35 billion. The Technology Solutions business would have increased margins from 29% to 45%. Pro forma non-GAAP operating income for the period would have more than doubled, including the effects of expected cost savings.
Tech Data CEO Bob Dutkowsky said:
This combination complements our value-added distribution capabilities in Europe and the Americas, while establishing Tech Data’s presence in Asia-Pacific, which will be a new market for us. As a result of the enhanced value proposition created through this transaction, Tech Data will be even better positioned to capture opportunities in next-generation technologies, deliver differentiated value to our customers and vendor partners, support career development for our employees, and generate strong returns for our shareholders.
Avnet CEO William Amelio said:
Moving forward, Avnet will focus its resources and investments on becoming a leader in design chain and supply chain services not only for our current customers and suppliers, but also for new markets. We will drive targeted investments in embedded solutions, Internet of Things (IOT) and critical digital platforms. By investing in these high growth areas, we can expand the breadth of our portfolio and attract new customers worldwide who depend on us to deliver world-class solutions.
The deal is expected to close in the first half of next year, subject to customary closing conditions and regulatory approvals. Tech Data said it intends to finance the cash portion of the acquisition with a combination of cash on hand, its existing revolving credit facility and proceeds from a new term loan and senior notes. Debt financing has been fully committed by Merrill Lynch.
The 2.785 million shares of Tech Data stock that are part of the deal amount to about a 7% stake in the company. Avnet expects to realize a gain of $3.75 to $4.75 per share when the transaction is completed.
Tech Data shares were unchanged in Monday’s premarket session, after closing at $69.34 on Friday. The stock’s 52-week range is $57.99 to $83.51 and the consensus 12-month price target is $74.35.
Avnet traded up about 12% Monday morning, at $44.00 in a 52-week range of $37.10 to $46.95. The stock’s 12-month target is $43.78.