Private Equity Firm Would Get 'Very Little' Benefit from Buying Tech Data

Tech Data reportedly has received a bid from a private equity firm to purchase the global distributor for nearly $5 billion.

Apollo Global Management has approached Tech Data with the buyout offer, according to a report by Reuters, citing people “familiar with the matter.” Tech Data said it doesn’t comment on market rumors or speculation, and Apollo couldn’t be reached for comment.

Tech Data’s stock has jumped 7.1% over the past month. For the second quarter of its fiscal year 2020, the distributor reported $79.3 million in profit, up from nearly $76 million for the year-ago quarter. Net sales totaled $9 billion, up from nearly $8.9 billion.

Tech Data has a market capitalization of $4 billion, and debt and cash on hand as of the end of July of $1.3 billion and $738 million, respectively, according to Reuters.

Techaisle’s Anurag Agrawal

Industry analyst Anurag Agrawal of Techaisle says from his view, Apollo has “very little” to benefit from the transaction.

“Private equity firms are known for squeezing cost out of the business and then heading for the exit,” he said. “But it is hard to do for distributors because their margins are already very low. And in the case of Tech Data, the margins are extremely low, but have been somewhat offset by their acquisition of Avnet. Apollo may be looking at it as an opportunistic buyout similar to what they did with Rackspace in 2016.”

Sean Riley, research director for IDC’s cloud panel management, said he’s not surprised there’s interest in Tech Data given the high level of private equity interest in the whole sector this year.

“Tech Data’s recent stock repurchase announcement likely helped them, as well as their purchase of Avnet Technology Solutions,” he said. “What’s surprising to me is the thought that SMB purchasing will remain strong in the near-term, contrary to economic concerns. Apollo’s failed bid for Ingram Micro last winter and their apparent pursuit of Tech Data now shows they badly want to get into the sector.”

Earlier this month, Tech Data said its SMB partner base is contributing heavily to the company’s growth. Its Tech Select reseller community targets the SMB and midmarket segments.