A blockbuster $7.2 billion merger of Tech Data and SYNNEX announced today will send significant shockwaves across the channel.
Scheduled to be closed later this year, the merger of two of the largest IT distributors in the world impacts not just IT vendors that rely on distribution partners to manage relationships with channel partners but also channel partners that rely on multiple distributors to finance deals.
Tech Data is currently owned by Apollo Funds, a venture capital firm that acquired the distributor in 2019 for $6 billion. SYNNEX is publicly held. Under the terms of the agreement, Apollo Funds will receive an aggregate of 44 million shares of SYNNEX common stock plus the refinancing of existing Tech Data net debt and redeemable preferred shares valued at approximately $2.7 billion.
Upon closing of the transaction, SYNNEX shareholders will own approximately 55% of the combined entity, with Apollo Funds owning approximately 45%. SYNNEX president and CEO Dennis Polk will become Executive Chair of the board of directors of the new entity, while Tech Data CEO Rich Hume will lead the combined company as CEO. That combined company will have pro forma revenues of approximately $57 billion with more than 22,000 employees that support 200,000 products and solutions.
SYNNEX today also reported its first quarter revenue are $4.9 billion, a 21% increase from a year ago at the start of the pandemic. Operating income was $142 million in the first quarter, compared to $100 million a year ago.
As part of a deliberate strategy, SYNNEX has tended to limit the size of its vendor line card compared to Tech Data. As such, the overlap between the two distributors is not at extensive as might be expected. In a conference call will industry analysts, Polk said the merger would enable SYNNEX to achieve its strategic goal faster than it would otherwise by rolling up a number of smaller distributors. “For SYNNEX this combination accelerates our strategic growth initiatives by multiple years,” said Polk.
Polk also revealed that in the first year the combined entity expects to generate savings of $100 million, followed by another $200 million in saving next year.
At the same time, Hume notes that as COVID-19 vaccines become more widely distributed many end customers are gearing up to jumpstart on-premises projects many of which have been on hold since the start of the pandemic. In fact, the rate of change occurring IT environments is only accelerating, added Hume. “Change is constant in our business,” said Hume. “This is a pivotal time in our industry.”
It’s unclear whether the combined entity will be larger than archrival Ingram Micro once the deal closes. However, one of the immediate impacts should be a significant increase in the number of partners engaging smaller distributors. Most channel partners do business with multiple distributors to maximize their credit they need to finance deals. With SYNNEX and Tech Data now combining, many of those channel partners will soon be looking to add one an additional distributor to replace either Tech Data or SYNNEX.
Many IT vendors, meanwhile, may also respond similarly to reduce their dependency on a small number of large distribution partners. Regardless of the outcome, a wave of mergers and acquisitions that have occurred across the channel in the last two years has now finally brought predictable results to distributors.