Distributors on EU Spending Spree

Europe's ongoing economic problems may be creating acquisition opportunities for US-based distributors. {complink 453|Arrow Electronics Inc.} and {complink 577|Avnet Inc.} have announced the acquisition of three European distributors within the last two days. Neither company revealed what they paid for the acquisitions, but all are expected to be immediately accretive to earnings after the deals are closed.

Two of the buys are in the IT and related services space. Arrow on Monday completed the acquisition of the ALTIMATE Group, a $340 million value-added distributor of enterprise and midrange computing products, services, and solutions based in France. The company operates in eight countries across Europe including France, Benelux, Iberia, and the United Kingdom. Avnet on Monday agreed to acquire the $350 million Magirus Group, a leading pan-European distributor of data center solutions and services.

On Tuesday, Avnet expanded its reach in the interconnect, passive and electromechanical (IP&E) components space with the acquisition of $30 million Altron GmbH & Co. KG. The company is headquartered in Germany, where Avnet has a new state of the art distribution center. Altron carries leading IP&E lines Vishay, Kemet, Wima, Yageo, and FCI.

Both distributors have reported component sales in the EU have been soft since the end of last year. In their most recent earnings calls with analysts, Arrow and Avnet reported their component book-to-bill ratios — a measurement of demand — in Europe were approaching parity. However, recent data on manufacturing demand indicates orders are unlikely to increase in the near-term as all geographies falter. (See: US Manufacturing Report Bleak.)

Both companies have a history of offsetting weakness in one business, in this case, components, with strength in other segments. Arrow's global enterprise computing solutions Q1 2012 sales increased 15 percent year-over-year to $1.54 billion. Arrow's Q1 global component sales of $3.35 billion decreased 14 percent year over year. While Avnet's global computer business saw its revenue decline in its third fiscal quarter by 8.1 percent year-over-year to $2.52 billion, operating income in the Europe, Middle East, and Asia (EMEA) region increased 69 percent during the period. Avnet's global components business decreased 4.3 percent year over year to $3.76 billion during its Q3.

The acquisitions also continue a trend in the distribution industry toward global consolidation. Arrow and Avnet began their global expansion through the acquisition of European component distributors in the 1980s and in Asia beginning in the 1990s. IT acquisitions have generally followed the same track. Arrow and Avnet remain the two largest electronics distributors in the world, but face regional competition with strong players in both Europe and Asia. EBN/EETimes annual Preferred Distributors Survey provides more detail. A summary of the findings can be viewed on our Webinar here.

2 comments on “Distributors on EU Spending Spree

  1. dalexander
    July 4, 2012

    Barbara, In this acquisition, I see Wima as being the new item on the line card. Avnet already had Yageo, FCI, Kemet, etc. With over 300 Avnet locations worldwide, is this Altron acquistion to extend their reach only? Because Avnet already has an incredible online presence, couldn't Altron's customers just buy form Avnet anyway? Altron was not that big that they could compete price-for-price on electronic components if Avnet decided to target that region without the acquisition. What do you think the significant reason for the purchase is?

  2. Barbara Jorgensen
    July 5, 2012

    Hi Douglas, great question! Distribution has gone from acquiring to add lines to acquiring for customer reach and market share. Although Avnet already carries nearly every key line–or a compatible item–across all component areas, Altron's customer base was likely part of the interest. The other aspect is becoming more valuable to your suppliers, and consolidating Alton and Avnet means suppliers have one fewer distributor to supply, manage and train. (The same is true for customers: instead of buying from Altron and Avnet, Avnet may be a more one-stop shop, since they carry chips as well.) One last possibility: in Germany, Avnet has a well-established semiconductor presence through EBV (part of the old VEBA). I believe Avnet has less of a presence (or perhaps brand)  in IP&E.

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