Australian distributors have met the news of Ingram Micro's $700 million buyout of Tech Pacific with optimistic talk of potential opportunity as well as misgivings for smaller players' future in a less competitive channel.
Angela Coronica, general manager at Dicker Data, said the acquisition had created a near-monopoly in IT distribution. However, opportunities existed for smaller players if they struck while Ingram Micro and TechPac were distracted by the resulting restructure.
“There were just two big fish – they weren't piranhas – in a fairly large pond and now one fish. So I don't think it will bring any more business into the channel. We're all still fighting over the same pieces of pie,” she said.
TechPac would be integrated with Ingram's systems and processes and people over the next six to 12 months. But they were two “very similar” organisations, so the buyout would put pressure on vendors to find more incremental revenue, she said.
“That equals opportunities for Dicker Data,” Coronica said. “Because we're nimble. We don't have huge expensive systems that have to be followed in transactions with a reseller.”
Dominic Whitehand, managing director at niche security distributor WhiteGold Solutions, called the new entity a “super-distributor” with incredible buying power. The result could threaten smaller distributors but good service and proactive support should mitigate that.
“There will always be room for distributors that truly add value and support their resellers effectively,” he said. “I don't feel it is a huge threat for us [as a niche player].”
The new entity might enjoy consolidation benefits, such as cost savings but WhiteGold would watch “with interest” to see how that might affect the merged entity's resourcing locally, Whitehand added.
Wendy O'Keeffe, GM at LAN Systems, said the takeover was likely to remain “pivotal” in the channel environment for the next half-decade.
“TechPac and Imagineering merged in the early 1990s and so this is another amazing moment in our history,” she said.
TechPac's merger back then had catapulted the distributor into a retail business growth phase. And retail was forecast to increase in importance for the channel in coming years, she said.
“Ingram probably bought TechPac to become number one globally and to get retail,” O'Keeffe said.
Whether the merger would be good or bad for the industry was a good question. It would depend on how distributors used any opportunity that might ensue from the different shape of the market. “My experience in the past 15 years is that this type of change helps,” O'Keeffe said.
Meanwhile, Ingram would gain strength in Asia and Australia that it did not previously have. However, the scale of any benefit would depend heavily on how well the merger was managed, she added.
“There's a really good management team in TechPac and Ingram Micro, and I'm sure they will work really well together to make sure it's done profitably,” O'Keeffe said.
Ross Cochrane, GM at Express Data, wondered if competition regulators would take an interest in the deal. He pointed out that while having fewer competitors could be seen as a good thing, for suppliers it could constrain credit availability.
“It's unlikely that we'll keep the limits we had with two separate entities,” he said. “So it might constrain some credit facilities – although other people might step up and provide that.”
Resellers and customers would have less choice in general. The channel would understandably have some concerns, Cochrane said.
However, Ingram Micro would find it had large amounts of resources in Australia to consolidate. That would be costly for the merged entity and might limit its ability to take up opportunities in Asian growth markets such as China and India, he said.
Express Data's view was that Ingram and TechPac had been getting broader and broader. Yet Express Data felt its own needs were served best by “adding significant value” and growing the market, rather than doing lots of fulfilment in games and consumer electronics, he said.
“Ingram came into the market with a bang many years ago but the local guys have shown they are pretty nimble and can find ways to compete pretty effectively,” Cochrane said.
John Wellar, director of advanced storage systems at distributor LAN 1, said the merger signified interesting times. “I believe the Chinese consider that a curse,” he said.
That said, such a buyout was bound to happen sooner or later as the pond simply wasn't big enough. However, large vendors and retail chains would now have somebody bigger to deal with and smaller vendors will wonder what's going to happen with their product lines, he said.
“I would also be worried if I was a small place-and-time distributor, but as specialised as we are, it will be a positive for us,” Wellar said. “Whether it's a 900 pound gorilla or a 700 pound gorilla, we've still got a big company to deal with.”
Ingram Micro might be able to ease its own margin pressures somewhat as a result. “And I guess it's time somebody made some money,” he said.
Wellar said he expected the local restructure to result in redundancies, as both companies were already so large. That would likely happen in the next few months as Ingram moved to maximise its edge.
Consolidation was starting to happen right across the IT industry. It had happened with VARs, such as Volante and Ipex, and was now happening in distribution with sectors such as networking, security and storage to come, Wellar said.