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M&A in the Distribution Industry Drives Consolidation

Like many readers of EBN, I got my start in the technology industry working with chip distributors. My first job after college was selling DSPs and other associated chips for Texas Instruments, and naturally I worked alongside distributors like Avnet and Arrow Electronics on a daily basis. 

Clearly the landscape of the semiconductor distribution market has changed over the last 20 years, consolidating through many mergers and now dominated by Avnet and Arrow, each with more than $20 billion in annual revenue. What does the current market for M&A in the chip distribution industry look like?

In the last 12 months, data provided by Capital IQ shows that there were 50 announced M&A transactions in the sector. Geographically, nearly half of the action (49 percent) was in Asia, followed the United States and Canada (29 percent), and Europe (20 percent). There were no blockbuster deals greater than $1 billion, and in fact none announced were greater than $100 million, with most being much smaller.

Smaller deals generally indicate that buyers were focusing on additional niche capabilities, not the absorption of large competitors to gain large market share and revenue.

Not surprising is who is making the most deals. In the last 12 months, according to Capital IQ, Avnet acquired eight companies, followed by Arrow Electronics doing three deals, and several other smaller players making one acquisition here and there. Clearly, Avnet continues to execute on its strategy of growing in part by acquisition.

Avnet is as an industry leader, with M&A a key part of its strategy. A quick view of Avnet's Investor Relations page shows that Avnet has made more than 60 acquisitions in 20 years. These acquisitions have undoubtedly aided Avnet in its current market presence with more than 100,000 customers, 300 suppliers, and nearly $26 billion in fiscal-year (FY) 2012 revenue.

Reading through Avnet's 2013 Analyst Day presentation provides more detail about the company's strategy and recent transactions. From FY2009 to FY2011, Avnet focused heavily on growing revenue and its international footprint, and less so on additional products or services. These 17 acquisitions added more than $5 billion in revenue according to the company. From FY2012-13, Avnet has accelerated its deal total through M&A transactions, adding $2 billion in revenue.

It is an open question as to what kind of M&A activity this market will produce moving forward. About half of the worldwide market share in semiconductor distribution is held by Avnet, Arrow, and WPG Holdings, leaving a vast array of smaller distributors to serve the other half of the market. It is possible that at some point several of the smaller players will consolidate in order to compete with the big players, but that is yet to be seen.

Additionally, the larger players may seek to grow by adding new services, as evidenced by Avnet Technology Solutions' acquisitions of several IT services companies in the last year. Regardless of how it shakes out, the next year looks to be interesting to watch.

If you are interested in more details about the deals I've seen while researching this blog, please feel free to email me.

8 comments on “M&A in the Distribution Industry Drives Consolidation

  1. elctrnx_lyf
    July 22, 2013

    I think the major companies will keep growing to be able to reach every customer in every country in next few years. The electronic distribution could be something like the logistics where DHL and FedEx are global leaders. GOing forward as more and more cities added to the electronic manufacturing clusters the distributors and logistics comapnies expand in a similar manner.

  2. ITempire
    July 22, 2013

    Certainly organic growth requires patience and is a symbol of a strategy that is neither offensive nor defensive. The growth that companies eye these days is usually difficult to achieve through organic growth therefore mergers and acquisitions are a short term but viable solution. To capture market share, a distrubtion company can adopt this method to its advantage.

  3. ITempire
    July 22, 2013

    Elctrnx_lyf, I think your comparison with logistics' industry is valid. Electronic distribution companies can establish franchises in other countries or acquire local distribution concerns to ensure their presence. Clients would certainly prefer that the electronic distribution companies have local presence as everyone likes to coordinate with a supplier that exists in the local market.

  4. Anand
    July 22, 2013

    Avnet is clearly the leading face in the market, it provides unparalleled customer support, top notch electronics, a healthy sales directive with many small sublet companies under its shade and a powerful policy statement that only helps it soar to the highest place in the electronics industry. Small industries are also coming up, and they are flourishing even with big names dominating the market primarily
    due to their ingenious marketing plans and procedures.

  5. Hailey Lynne McKeefry
    July 22, 2013

    When i think of consolidation, I think of much younger markets… On the other hand, it seems clear that in this industry, acquisition provides an opportunity for organizations to add capabilities quickly and perhaps more affordably…and perhaps with fewer growing pains. It would be interesting to see how the picture has changed in five years or so. We pay so much attention to acquisitions when they occur but then it's business as usual. Anyone have examples from a few years ago wherea n acquisition was big news and then didn't net traction for the organization? Or where things went stellarly?

  6. ahdand
    July 24, 2013

    @Waqas: True I think the main reason behind it is the financial factor. Most companies focus heavily on the financial growth rather than the other sectors. Its something which should be addressed in a proper manner.

  7. SunitaT
    July 31, 2013

    In adding to economies of scale, other factors that inspire company integration include brand alignment, market reach expansion, globalization and downstream consolidation. Corporations seek to acquire brands that fall into their portfolio naturally, either to diversify or narrow on a specific market. In the meantime, growth through market reach growth is particularly enticing to brick-and-mortar industries.

  8. ITempire
    August 3, 2013

    nimantha.de, alongwith the financial aspect there are many other significant factors that motivate companies to get hold of mergers or acquisitions for e.g. operational synergies and effect on the price quoted at the stock exchange. In distribution industry, a major factor can be the acquisition of a geographical market share whether the target company holds a distribution network in a territory where the aquirer does not have presence.

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