Super distributor Ingram to own 35 percent [updated]

Global distribution giant Ingram Micro Inc has acquired Tech Pacific in a $700 million cash deal that local Ingram boss Steve Rust said would give the combined entity up to 35 percent of the Australian distribution market.

Speaking to CRN, Rust said Ingram had begun speaking to vendor partners about the effects of the merger. “The overwhelming reaction I'm getting from them is 'what does it mean for us'.”

While some vendors who had been customers of both Ingram and Tech Pac might be concerned that their number of distributors was going to shrink, Rust said smaller vendors would benefit from the critical mass provided by the merger.

“The actual acquisition won't take place for several months yet, so they can make their decisions in an orderly fashion.”

“For Ingram Micro it's a tremendous opportunity --Tech Pacific has the broadest product portfolio and broadest customer base in the market.”

Tech Pac would give Ingram Micro access to the mass market retail channel, while benefiting from Ingram's interest in the white-box market, said Rust.

Ingram Micro president Greg Spierkel said that TechPac CEO Shailendra Gupta and CFO Guy Freeland would be retained. Alain Monie, president Ingram Micro Asia Pacific will also stay on.

Due to the size and complexity of the pan-Asian merger, Tech Pac head Gupta will oversee an integration team from Tech Pac's Asia Pacific head office, said Rust.

While an Australian integration team would be established over the coming week, Rust said the two distributors will continue to operate as competitors until the merger. He expected the process to take several months.

The post-merger management and staffing requirements were yet to be established, but Rust said he'd told Ingram staff “there ought to be plenty of jobs”.

“Right now what I've said is this investment is about growth.

“Both Tech Pac and ourselves have increased profitability by doing more with less -- we're down to the bare bones.”

The nature of broad-based distribution meant that there was not a lot of fat to be shed from either organisation, in a period when Ingram hoped to fuel growth through increased critical mass.

“We are two big organisations -- in putting them together there ought to be plenty of jobs.”

While estimating that post-acquisition Ingram will command between 30 and 35 percent of the local market, Rust played down concerns about a distribution monopoly.

“There are about 150 distributors Australia-wide. It's a highly competitive market, margins are razor thin.”

Rust said the nature of the industry worked to foster competition. “A number of factors in our industry are self-correcting. Relationships aren't locked in, and vendors want to get their products to market.”

“In other countries where consolidation has occurred, profitability and margins remain unaffected.

The acquisition gives majority owner CVC Asia Pacific (with a 58.5 percent share) an exit from the distributor. Hagemeyer owns 31.5 percent and management 10 percent.

Tech Pacific's plan to IPO on the Australian Stock Exchange has been cancelled following the sale.

Tech Pacific generated $3.1 billion in revenues and operating margins of around two percent of revenues for the 2003 fiscal year. EBITDA was $63.23 million.

The distributor employs 1800 people across the region and operates 15 distribution centres in Australia, New Zealand, India, Hong Kong, Malaysia, Singapore and Thailand. It deals with more than 25,000 resellers and 75 vendors with a portfolio of more than 10,000 products.

While Rust declined to reveal Ingram Micro's Australian revenues, he said “Tech Pac are more than twice as large as us,” putting its revenues below $1.6 billion.

Ingram CEO Hans Koppen, said the acquisition was a giant leap forward in the company's development in Asia-Pacific. "Tech Pacific is a strong, profitable player in some of the region's key markets. It is the market leader in two of the region's most stable markets -- Australia and New Zealand -- as well as the rapidly growing, emerging market of India. Sales have outperformed the overall market and every country-based business unit generated in operating profit last year," he said in a statement.

CVC Asia Pacific MD Andrew Cummins said in a statement: "The sale of Tech Pacific represents another successful exit for CVC Asia Pacific and underpins a strong performance in our first Asia Pacific fund."

Ingram Micro Asia Pacific would nearly double in size in revenue terms and would become the leading IT distributor in Australia. Its profitability would improve and regional operating margins would strengthen in the 2005 fiscal year, the company said.

By product, Ingram Micro had a large "components mix" while Tech Pacific was "stronger in software," Ingram said.