Following years of speculation and channel conjecture, the inevitable has happened - Tech Data has arrived in Australia.
Fresh from entering into an agreement to acquire the Technology Solutions business from Avnet - in a transaction valued at approximately $US2.6 billion - the deal represents the tech giant’s first move into the local market, creating channel ripples in the process.
As the world’s second largest distributor - behind only Ingram Micro in size and scale - the US-based organisation has threatened but so far failed to make an Australian play work, with many rumours playing out over the years as to how it would enter the market.
Whether it be through acquiring the established local players in Dicker Data or Distribution Central, the common line was that for Tech Data, it was a matter of when, not if, Australia would become a key location.
Yet as revealed overnight, the distributor has acquired an Australian presence through a much wider play, in taking over Avnet’s data centre business at a global level.
This is not an Australian motivated deal as such, rather part of the bigger picture as the distributor aims to significantly enhance its footprint across Asia Pacific.
Approaching middle age at 42, the Florida-based multinational is essentially a titan of distribution, generating $US26.4 billion in net sales for the fiscal year ended January 31, 2016, with a no.108 ranking on the Fortune 500.
Playing out in the numbers, Tech Data sells over 150,000 IT products, to over 105,000 customers spanning over 100 countries, processing 50,000 daily transactions along the way.
But these are not just numbers, they point to the distributor’s ability to enter Australia and seriously challenge the incumbents.
Australian impact
“Any distributor that is worried by this deal is believing the publicity,” Distribution Central managing director, Nick Verykios, told ARN.
“At this stage Tech Data isn’t in Australia, Avnet is. At the end of the day it’s the same player, with the same vendors, doing the same thing.”
As a well-established volume player, Verykios believes Tech Data is trying to emulate the model set by Ingram Micro, by deepening its focus on the value-added side of the business, in a bid to move up the distribution food chain.
“Is Tech Data a volume or a value play now?” he asked. “They will probably face an identity crisis before working out what they will become because you can’t just wake up, buy a company and decide to add value.”
As explained by Verykios, the emerging technologies and vendors in the market now require a different distribution touch, one based around providing value to the channel rather than simply volume.
“The big vendors we’ve been working with for over 10 years are still value plays, that’s what these emerging technologies require,” he added.
On a global scale, Tech Data goes head to head with fellow big hitters Ingram Micro and Synnex, a rivalry which will now play out on Australian shores upon completion of the deal.
“We have a different go to market strategy so we see little impact to our business locally,” Synnex CEO of Australia and New Zealand, Kee Ong, told ARN.
“The market is big enough to accommodate us all because we’re operating in the technology space, which is constantly creates new markets and revenues.”
For Dicker Data CEO, David Dicker, the move represents "further consolidation" within the technology space.
“The weaker guys get weeded out and Tech Data sees this as a way to improve it’s position against Ingram Micro," Dicker told ARN.
"But how long will it take Tech Data to get Avnet competitive in Australia? That’s the process that could take years.
"I can’t imagine they will make wholesale changes, if you buy something and do a whole amount of restructuring it’s almost counter productive to the buy."
Traditionally, the worldwide market has been dominated by Ingram Micro and Tech Data - both regular features at the opposite ends of large-scale vendor conferences overseas.
Closer to home however, the multinational is now taking the fight to its closest rival in Australia.
“The Australian ICT industry has a very competitive landscape with M&A a natural result of shifting market demands, and the renewed focus around value-add services business,” Ingram Micro country executive of Australia and New Zealand, Felix Wong, told ARN.
“Ingram continues to drive growth within our value added speciality divisions, with dedicated teams focused on partner education, demand generation and deployment across a range of services within; Pro Av, Physical security, DC POS.
“As well as our Life Cycle services offerings, where we provide configuration, deployment, end of life trade in, secure destruction, giving partners an end to end fulfilment solution.”
With the industry naturally remaining tight-lipped upon digesting the deal, across town at fellow global player Westcon-Comstor, the minimal disruption to business line is also playing out, with the distributor seemingly unfazed by the short-term impact on the industry.
“From our perspective it’s just a logo change at this stage, with minimal impact to our local business,” Westcon-Comstor managing director of Australia and New Zealand, Dave Rosenberg, told ARN.
Niche players
At the niche end of town, Exclusive Networks managing director, Dominic Whitehand, believes the status quo will remain in the interim, with the acquisition set to close in the first half of 2017.
“I wouldn't expect to see much change locally in the short term,” Whitehand confirmed to ARN.
“With the combined entity predicted to represent just three per cent of revenues in APAC, then naturally the requisite amount of investment and change will presumably be apportioned to the region as a whole.
“And in fact, since there has been zero Tech Data presence in A/NZ to this point, effectively the entire remit for growth is on Avnet in A/NZ - so no change in our competition for at least the next 12 months as far as we can tell.”
As a fellow specialist distributor in an increasingly crowded market, Hemisphere Technologies also advocates the value-added local play, with the deal expected to bring new technologies and practices to the market.
“There’s pros and cons to dealing with the larger guys,” Hemisphere Technologies director, Andrew Mamonitis, told ARN. “They do what they do very well and they do it because it’s profitable and brings growth, alongside the breadth of technologies they offer.”
In Australia, Mamonitis believes resellers are increasingly choosing to align with “smaller, more focused distributors”, moving away from the transactional nature of the larger players.
“They like the service levels, the more personal touch and the fact that we are not too thinly spread across our vendors,” he added. “But I don’t think the deal is a negative and I would suspect that when they enter the market they will introduce new technologies which is exactly what Hemisphere is doing at the moment.
“Anyone entering this market and making noise around next-generation technology and solutions is a good thing as far as we are concerned because it only grows the market.
“It makes that pie so much larger and we back ourselves to bring across partners and introduce those next-generation technologies.”
Confirming the specialist consensus in Australia, BlueChip Infotech director, Phil Lancaster, told ARN that a deal of this magnitude will naturally “change the landscape” of the local channel.
“The main thing will be what other vendors they have internationally that they will want to tack on to their local distribution,” he added. “It's yet another global player that is going to put pressure on the local distributors.”
Not Dicker Data?
With a seemingly lukewarm introduction to the market expected, Tech Data’s acquisition of Avnet’s Technology Solutions business represents much more than an Australia play.
Unlike Arrow’s acquisition of Distribution Central in March, this deal spans the world, significantly bolstering the distributor’s footprint across Asia Pacific as a result.
Offering the clearest indication yet as to why Avnet topped the list of potential acquisition targets over Dicker Data, terms of the deal highlight that Tech Data’s vision surpasses that of Australia alone.
“Tech Data want an Asia Pacific footprint,” Channel Dynamics director, Cam Wayland, told ARN. “Dicker Data represents a very strong Australia and New Zealand play, but strategically, this is on a much bigger scale.
“Arrow already had presence in Australia and acquired Distribution Central because they required scale - it made a lot of sense and was very targeted.
“This is a much bigger play but over time, having a giant such as Tech Data in Australia will play out well for the distribution scene locally."
With Technology Solutions, Tech Data will establish an immediate presence in the Asia Pacific region, which will be a new market for US-headquartered organisation.
"I never thought it was realistic that they would buy Dicker Data because buying Avnet is a global play which makes sense,” Dicker added.
Currently, the company’s data centre business is well-established in Europe and has a growing presence in North America with these regions representing approximately 61 per cent and 39 per cent of Tech Data's fiscal year 2016 revenues, respectively.
With Technology Solutions however, Tech Data will expand its operations from 21 to 35 countries worldwide, with Europe comprising 53 per cent of the company's $35 billion pro forma revenues, the Americas 44 per cent and Asia-Pacific three per cent.
Vendors
Globally, the publicly-traded company represents the industry’s leading vendors, such as Apple, Cisco, HP, IBM, Lenovo, Microsoft, Symantec and VMware.
Through the acquisition of Avnet Technology Solutions, the distributor now stands to significantly boost its play across servers, storage, software, networking and services.
As outlined in Tech Data’s official investor presentation, key vendors within this global portfolio include Amazon Web Services, Microsoft, Hewlett Packard Enterprise, DELL EMC, Cisco, Oracle, IBM, Juniper Networks, Nimble Storage, Nutanix, F5 and NetApp.
In Australia however, Avnet’s Technology Solutions portfolio is notably without Hewlett Packard Enterprise - following a local distribution review in February.
Traditionally, acquisitions of this magnitude trigger distribution reviews on a national scale, as outlined by Wayland.
“If the acquiring distributor has global relationships that are replicated in the local market, naturally pressure is placed on the vendor to provide access to that particular vendor,” he observed.
“As a global player, if Tech Data has a vendor relationship with every country other than Australia, this will change the dynamic at a local level.”
Yet in reality, Verykios believes the need to instigate distribution reviews rarely plays out in reality, highlighting the strength of local relationships.
“Not many vendors in Australia are strong-armed by global strategies with distributors, and almost all key decisions are still made locally,” Verykios said.
As reported exclusively by ARN, Hewlett Packard Enterprise selected Dicker Data, Distribution Central, Ingram Micro, Lynx Technologies and Sektor as its distribution partners for 2016 and beyond, following an extensive review of its Australian processes in February.
Speaking from experience, Verykios believes the result of the review illustrates that local expertise continues to outrank global relationships in terms of distribution deals.
“Hewlett Packard Enterprise publicly stated that they made a local decision following their distribution review, and it was supported by the global team,” he said.
“The strategy was defined by a local play and most vendors are the same in that respect. Distributors can’t simply just grab new vendors through acquisition.
“Vendors want pure distributors that are bigger and stronger than before, but they don’t want to lose the value.”
Endorsed by Ong, the notion that Tech Data’s arrival will instantly send vendors into a state of distribution panic at this stage remains unfounded.
“It’s unnecessary,” Ong added. “Worldwide players have strong investments locally and we don’t anticipate this to change.
“The IP and knowledge required to be successful locally is hard to replicate and transfer, and we’re confident in the value that we provide to our vendors and resellers.”
As one of Hewlett Packard Enterprise's largest providers globally, Dicker accepts that it is realistic to assume Tech Data will seek a similar arrangement in Australia.
"But given the recent review, I’m not sure how that will play out,” he observed. “Tech Data will beat on the drum in America but they have just made the decision in Australia so I can’t see anything changing.”
Spanning data centre, converged and hyper-converged, software, cloud, security, mobility, analysts and consumer electronics, Avnet’s partner base includes value-added resellers, system integrators, service providers, independent software vendors and retailers.
Collectively, the combined entity brings together over 14,000 employees worldwide, with both businesses run on the SAP platform.
But as the dust settles, the impact of Tech Data locally at this stage remains unknown.
In the months and years ahead however, perhaps the channel will look back on this as a defining day for Australian distribution.
Additional reporting from Chris Player, Leon Spencer and Hafizah Osman.
This story was updated at 12:53pm with comment from Dicker Data.
