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Tech Data-Synnex merger poses IT distribution questions
The merger of IT distributors Tech Data and Synnex presents synergies -- as well as some areas of overlap -- between their respective business models.
The proposed Tech Data-Synnex merger could have wide implications for the IT channel industry and foreshadow shifts in the market, according to some industry watchers. If the transaction is completed, the combined company will become the largest U.S. IT distributor, with approximately $57 billion in annual revenue, more than 22,000 employees and 200,000 products.
The merger comes at a time when digital transformation has gained significant traction in the business world. As businesses embrace digital technology, distributors and partners have sought to keep pace by offering more cloud-based offerings and retooling operations.
The growing interest in digital transformation has also contributed to an influx of private equity among IT distributors, said Martin Wolf, founder of Martinwolf, a channel financial advisory firm based in Scottsdale, Ariz.
"The equity firms have a different way of looking at the channel," Wolf said. "They will break the existing business models and create new ones."
In November 2019, Apollo Global Management Inc., took Tech Data private. In December 2020, distribution heavyweight Ingram Micro also opted to go private.
Merging distribution business models
The Tech Data-Synnex merger would combine two distinct distribution business models.
Founded in 1980, Synnex distributes more than 30,000 technology products from more than 500 manufacturers. More than 20,000 channel partners tap Synnex to provide offerings to SMBs and tech-savvy consumers in North America and Japan. In 2020, the company generated $24.7 billion in sales.
Synnex has three divisions:
- Synnex Westcon-Comstor operates in North America and South America and emphasizes security, collaboration, networking and data center technologies. The division also focuses on helping partners provide Cisco products.
- PCW distributes excess and factory-recertified IT hardware.
- New Age Electronics markets retail consumer electronics.
"Synnex has been the most innovative of all distributors," Wolf noted. "They were late into the market, caught up, created an innovative outsourcing model, and have a good track record of anticipating market needs and growing their business."
Tech Data, meanwhile, started in 1974 and has a portfolio of more than 150,000 IT products today. In fiscal year 2020, Tech Data generated $37 billion in global sales. The company's network of channel partners includes more than 125,000 firms.
The two distributors have complementary features, according to Bob Stegner, senior vice president of marketing for North America at Synnex. For example, while Tech Data has traditionally focused on equipping partners in the enterprise market, Synnex has focused on the SMB segment.
As for geographic reach, Tech Data has developed a large presence in Europe and Synnex has footing in Japan and Latin America. Overlaps do exist, however.
"Both Tech Data and Synnex have a strong presence in the Americas region," noted a Tech Data spokesperson in an email. "There will be some overlap in certain functions and geographies, but it is too soon to know exactly how we can use each other's capabilities and market strengths, and it would be premature to discuss the specifics until the transaction closes."
The combined company would collectively have more than 200,000 products. Some of those products may be phased out as the Tech Data-Synnex merger takes effect.
Additionally, Tech Data and Synnex offer partners a wide range of programs and support services:
- access to vendors' latest offerings;
- technical support;
- training and enablement;
- marketing materials and support;
- joint sales initiatives; and
- accounting and billing services.
It's too early to determine what will happen with their respective partner programs and support services if the proposed merger gets approved. "We have not started to integrate our partner programs because the transaction has not been approved yet," Stegner noted.
Synnex shareholders are expected to vote on the merger in the second half of its 2021 calendar year.