Tech Data Corp
) is increasing its exposure in the UK, France and the Netherlands
through the acquisitions of some distribution companies of
Specialist Distribution Group ("SDG") for $350 million. SDG is the
distribution division of UK-based IT services company Specialist
Computer Holdings ("SCH").
Tech Data will be acquiring shares of SDG, IQ Sys and ISI
Distribution in the UK, ETC and Best'Ware in France and ETC in the
Netherlands. The transaction is expected to be completed in the
fiscal fourth quarter of 2013.
Upon getting the required approval from the European Union
regulatory authorities relating to the acquisitions, Tech Data
would gain control of the aforementioned distribution companies.
The acquisitions would not only increase Tech Data's exposure in
Europe, but revenues from these acquired companies would add to its
top line (approximately $500 million annually).
Moreover, the acquisitions would reinforce the company's
enterprise business, Azlan, by adding a range of offerings such as
data center, enterprise software and broadline products (PC and
peripherals). The company's customer base will also increase.
Tech Data is focused on diversifying its operations in Europe,
as it faces stiff competition in the domestic market from
Ingram Micro Inc.
Tech Data generates the majority of its sales from European
countries (approximately 60% of total sales). Gartner expects IT
spending in Central and Eastern Europe to be positive, which is
expected to garner nearly $158 billion in 2012. Thus, these
acquisitions by Tech Data will help the company grab a share of
this billion dollar opportunity.
However, sales from the European region dropped 5% year over
year in the recently concluded quarter where macro concerns
continue to weigh on IT investments.
Other than the volatile European market, there is also a lack of
visibility in government spending in the U.S. Sluggish PC shipments
are also expected to hurt Tech Data's top-line.
We believe that Tech Data's strategy of shifting resources from
lower-performing regions to higher-growth regions, cost reductions
(shutting down business in the loss-making Brazilian and Colombian
units) and accretive acquisitions (14 acquisitions added $1.5
billion in sales over the last four years) will drive growth over
the long term.
Moreover, we believe that Tech Data is well positioned to
achieve strong top-line and bottom-line growth over the long term,
as information technology (IT) spending picks up and its new
technologies start contributing.
Thus, we maintain our long-term Neutral recommendation on the
stock. Currently, the stock has a Zacks #3 Rank, implying a
short-term Hold rating.
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