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Avnet to Grow Further in EMEA with Orchestra Buyout; Up 4%

Shares of Avnet Inc.AVT gained more than 4% in yesterday's trade after the company announced a deal to acquire Orchestra Service GmbH, which will strengthen its storage portfolio in the Europe, Middle East and Africa (EMEA) region. Orchestra Service is a specialist German IT distributor of innovative storage solutions and services around EMC products.

The deal, anticipated to close within 30 days, is expected to be immediately accretive to Avnet's earnings. Moreover, the acquisition will help the Phoenix-based technology distributer to achieve its return on capital goal of 12.5%.

Headquartered in Munich, Germany, Orchestra was founded in 1998. It is one of the leading IT storage solutions and services distributors in the country. The company with approximately 50 employees generated $95 million of revenues in 2014.

According to Avnet, "Orchestra has developed strong storage-centric expertise to help its customers grow and take advantage of the many opportunities that exist today as well as position itself for market growth in areas such as cloud computing, big data and information management".

Post acquisition, Orchestra will be integrated into Avnet Technology Solutions' EMEA business. Currently, the region contributes approximately 28% to Avnet's total revenue.

Acquisitions form an important part of the company's core strategy to bolster portfolio and expand global operations, while contributing significantly to the revenue stream.

Avnet's recent acquisitions have expanded its international business, especially in the EMEA region. During fiscal 2014, the company took over three companies with combined annualized revenues of roughly $492 million. In fiscal 2013, it acquired 12 companies with combined annualized revenues of almost $1.18 billion.

We remain optimistic about Avnet's leading position in electronics distribution, continuous cost cutting initiatives and acquisition synergies.

Avnet's strong balance sheet and cash flow provide it with the financial flexibility to undertake strategic initiatives and expand in newer markets. The company generated operating cash flow of $583.9 million in fiscal 2015, concluded recently, and ended the period with cash, cash equivalents and investments of nearly $932.6 million.

However, a significant portion of Avnet's revenues comes from the sale of semiconductors, which is a cyclical industry characterized by changes in technology and manufacturing capacity and subject to significant market upturns and downturns. Intensifying competition from Arrow Electronics Inc. ARW and Ingram Micro IM also remains a headwind.

Currently, Avnet carries a Zacks Rank #2 (Buy). Another stock worth considering in the broader technology sector is Avago technologies Limited AVGO which also carries a Zacks Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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