Tech Data Corp. (TECD), which delivered stronger-than-expected quarterly financial results today, continues to march forward with a two-pronged business strategy, according to CEO Bob Dutkowsky. The effort involves (A) day-to-day execution while (B) preparing to finalize the Avnet Technology Solutions (ATS) buyout from Avnet in early 2017.
Tech Data announced the $2.6 billion ATS acquisition in September 2016. The U.S. Department of Justice approved the deal a few weeks ago. Tech Data awaits additional approvals from across Europe and additional countries, though everything should be finalized in early 2017.
On the financing front, Tech Data has updated its revolving credit agreements to help pay for the deal. Tech Data will also tap about $200 million in stock to finance the deal. A bond offering closer to the close date also is expected.
Tech Data and ATS: Rivals for Now
In the meantime, Tech Data and Avnet remain competitors. When Avnet announced a managed security service for partners last week, Tech Data learned about the move from publicly available information. Amid that competitive setting, Tech Data has a team that's preparing to integrate ATS into the company. At this point, the Tech Data team can study publicly available Avnet information to help theorize some strategies post-acquisition. But confidential R&D information can't be shared across the companies until the deal actually closes.
In terms of day-to-day performance, Tech Data delivered strong quarterly results today. Net sales were $6.5 billion, an increase of 1 percent compared to the prior-year quarter. On a constant currency basis, net sales increased 4 percent.
At first glance that sounds anemic. But considering some recent softness across the IT market, Tech Data's results were actually strong. "It was a very good quarter for us," Dutkowsky tells ChannelE2E. "We grew sales and were were able to deliver double-digit non-cap operating growth. Quite frankly the IT market isn't all that strong. Nobody is talking about growth and yet we were able to grow."
Shifting IT Budgets
A point of clarification: While the traditional IT market has been soft, the cloud-centric market -- where Amazon Web Services, Microsoft Azure and other public providers compete -- has been especially strong. That reality surfaced within Tech Data's own results -- where server and storage sales were down in the Americas and Europe, but networking and security sales were up.
"Networks are under extreme pressure to grow and support the workloads," says Dutkowsky, regardless of where the application physically runs. "And then you’ve got to secure it all."
Avnet Technology Solutions, meanwhile, delivered weaker-than-expected results in October. Tech Data says the results won't impact that ATS buyout. "We want to acquire ATS because it’s strategic, not because it has a good or bad quarter," says Dutkowsky. ATS empowers Tech Data with more and different products, and different business offerings in new regions like Asia Pacific. "Most importantly it brings broad away of talented skills and people that we don’t have."
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