Tech Data-Avnet Deal Reflects Shifting Distribution Value

The acquisition, a bellwether of things to come in the two-tier channel, will allow both companies to capitalize on emerging technologies such as IoT.

By Larry Walsh

The Tech Data acquisition of Avnet’s Technology Solutions unit is in the books.

Tech Data CEO Bob Dutkowsky called yesterday “a momentous day” as the company closed its $2.6 billion takeover of Avnet’s Technology Solutions business unit. With the check cashed and the keys turned over, Tech Data shifts its focus to maximizing the assets it acquired. Starting today, Avnet turns its attention to component sales and embedded solutions.

So, who’s the real winner in this deal and what can the vendor and channel communities expect from it?

While most analysts and media are focusing on the amount paid by Tech Data and the resulting size of the post-acquisition companies, the acquisition reflects the changing nature of distribution amid some disruptive technology trends. Specifically, the new Tech Data and Avnet are both laying claim to holding the keys to the Internet of Things (IoT) channel.

Tech Data got more of what it already has in the deal. In picking up Avnet’s distribution business, it expanded its vendor relationships, product portfolio, and market reach – particularly in Asia. The deal gives Tech Data substantial resources and new relationships with which to execute on legacy and emerging technology strategies.

[ctt tweet=”#TechData got the short-term win & #Avnet got the long-term win in #aquisition.” coverup=”eOmq9″]

“Our combined company is perfectly positioned at the epicenter of the IT ecosystem—with the scale and scope to serve dynamic markets throughout the world—giving our customers access to an end-to-end portfolio of IT solutions and efficiently bringing our vendors’ products to new customers in more markets,” Dutkowsky said in a statement.

Avnet retains its components and embedded systems business, through which it will focus on product development and integrated systems. As Avnet CEO William Amelio said in a post-acquisition statement, “We will now be able to focus all of our attention and considerable expertise and scale in supporting our customers at every phase of the product lifecycle with services that offer a time to market advantage. We also have substantial financial resources to further drive our targeted investments in integrated and embedded solutions, IoT, and digital platforms to create even more opportunities for makers, entrepreneurs, and large manufacturers.”

Is there a winner in this deal? You could say both Avnet and Tech Data got something. Tech Data got a bump in market share, revenue, resources, and market reach. Avnet is unshackled from its legacy business to focus on a substantial niche market. However, it’s probably best to say that Tech Data got the short-term win and Avnet got the long-term win.

Distribution is under tremendous pressure to change with the evolving technology landscape. While IT infrastructure is and will remain built on hardware, the delivery of applications and content is mostly free of the underlying hardware. This evolution means distribution has less product to sell and must focus on its other value attributes: partner management, cloud enablement, service and support, and marketing. It’s not an easy transition.

[ctt tweet=”#TechData & #Avnet combined is perfectly positioned at the epicenter of the #ITecosystem.” coverup=”mJFzb”]

Tech Data is among the leading distributors building toward the expanded future dominated by cloud computing, mobility, IoT, and Big Data. The additional resources will help ease the transition by giving it the muscle to build upon its legacy while reducing Wall Street critiques. The deal won’t remove all the bumps. Vendors and partners can expect many personnel changes as Tech Data reshuffles its organization and some staff on both sides exit the company.

Avnet, on the other hand, is well-positioned for the embedded and automated machine-to-machine future. It’s long had a healthy custom design and manufacturing business that is suited to take on the coming demands of IoT and integrated systems. Freed from its low-margin distribution business, the smaller Avnet will become nimbler and potentially more profitable. Expect Avnet to play a significant role in shaping products and business development of emerging and transitioning vendors.

The Tech Data-Avnet deal is a sign of the shifting role of distribution. Do not expect Tech Data to remain in the legacy distribution business (it already has a substantial presence and capabilities in cloud and automated services). But Avnet’s decision to exit the legacy distribution model reflects how distributors are evolving – and even changing their stripes – to meet future market needs and maintain relevancy.

Larry Walsh, The 2112 Group

Larry Walsh is the founder, CEO and chief analyst of The 2112 Group. Follow him on social media channels: Twitter, Facebook, LinkedIn.