The second largest distributor in the world, US based Tech Data, has bought control of pan-European Computer 2000, the third biggest, leaving the US to dominate the worldwide wholesale IT business.
The move could also push prices up as Tech Data and Ingram Micro become a virtual duopoly in some countries, with only CHS Electronics left as a viable competitor to the big two.
The acquisition is a stock and notes deal, worth around $400 million, for the 80 per cent stake in C2000 owned by holding company Kloeckner. The deal makes sense to C2000, whose executives in many countries have clashed with the board and argued over the direction imposed by an "uninterested" parent.
The deal also makes sense for Tech Data, which is huge in the US but only has a significant European presence in Germany, where it owns Macrotron. The agreement even makes sense for Ingram, as it will lose one of its two major competitors and be able to compete with Tech Data on value rather than price.
Jerre Stead, chairman and chief executive at Ingram, even said: "I?m very glad Tech Data will be an across the board competitor." He believes the move shows distributors need to be global businesses and Tech Data chief executive Steve Raymund said the buy was not made to compete with Ingram but was to ensure his company gained success in Europe.
The deal should add C2000?s $4.9 billion turnover to Tech Data?s $7.1 billion, allowing the merged company to challenge Ingram?s $16.5 billion business.
The consolidation in distribution follows many similar moves in the channel business and shows that distributors see future growth in the European market. It also highlights the increasing urgency of wholesalers to merge, thus gaining enough economies of scale to make profit amidst the lower margins associated with the maturing computer industry.
C2000?s disastrous 1995 acquisition of Ameriquest, which marked its move into the US, was typical of the company?s problems. Despite the promise that it was becoming a global rather than European distributor, the wholesaler struggled to make any inroads into the US distribution business and resignations and differences of opinion followed. Indeed, Raymund does not see Ameriquest as an important part of the deal and may well divest or close it.
C2000?s other problem was that Kloeckner never considered IT distribution a core business and had been willing to sell for some time. But Viag, C2000?s ultimate parent company and owner of Kloeckner, will keep an interest in distribution by putting an executive on Tech Data?s board and remaining a significant Tech Data shareholder. Viag also negotiated to keep one board member position at C2000.
Once C2000 failed to expand outside Europe, it was always going to suffer disadvantages compared to its giant US rivals. CHS gambled on global expansion with its expensive takeover of Merisel?s European business and it has paid dividends; it is now the only company that can seriously pose any challenge to the big two in the coming years.
The deal will have little effect on some European markets. The UK, for example, will merely see a change in ownership of one its biggest distributors, Computer 2000 (formerly known as Frontline Distribution), as it becomes Tech Data. In Germany, however, Tech Data will now dominate as it owns two of the top four wholesalers - both C2000?s home business and Macrotron. However, Tech Data may decide, or be forced by antitrust legislation, to sell Macrotron.
It is likely that Tech Data will impose some executives on C2000?s European businesses, which have grown but at slower rates than their competitors, but many country managers and executives will remain with the company at least for the time being. Raymund was non-committal about C2000?s managers or the future of Macrotron.
The only risks analysts see for Tech Data are the obvious logistical and cultural hurdles in merging C2000 into its existing business, because Tech Data will gain new C2000 businesses in Belgium, Bulgaria, Czech Republic, Denmark, Estonia, Finland, Hungary, Ireland, Iceland, Italy, Latvia, Lithuania, Netherlands, Norway, Poland, Portugal, Russia, Slovakia, Spain, Sweden, United Arab Emirates, UK and the USA. Both companies trade in Austria, France, Germany, Switzerland and Latin America.
With the US-centric computer business and the moves US companies have made to acquire European Vars and systems integrators, C2000 was one of the few major European forces in the IT industry. Tech Data?s buy truly makes it and Ingram the dominant players in the IT distribution business, able to set prices in many markets and for many vendors, and it means European reseller channels will have little option but to follow the Americans? lead. Prepare for higher prices and American management that is over-distributed, overwhelming and over here.
Cotton seedling freezes to death as Chang'e-4 shuts down for the Moon's 14-day lunar night
Fortnite easily out-earns PUBG, Assassin's Creed Odyssey and Red Dead Redemption 2 in 2018
Meteor showers as a service will be visible for about 100 kilometres in all directions
Saturn's rings only formed in the past 100 million years, suggests analysis of Cassini space probe data
New findings contradict conventional belief that Saturn's rings were formed along with the planet about 4.5 billion years ago