What to know about the US$7.2B Synnex-Tech Data merger

Meet the world’s largest IT distributor

Synnex and Tech Data will create the world’s largest IT distributor through their US$7.2 billion merger, coming in nearly US$10 billion larger than Ingram Micro, which had US$47.2 billion in sales in 2019. The companies announced their mega-deal Monday, just months after Tech Data was bought by private equity firm Apollo and Synnex spun out its US$4.7 billion Concentrix customer experience unit.

The deal will accelerate the rapid consolidation in the  IT distribution market. Aside from Ingram, the Synnex-Tech Data combination would compete against Synnex Group (which holds a 17 percent stake in US-based Synnex Corporation), Dicker Data, The combined Bluechip/DNA Connect and more specialty players including Arrow, Exclusive Networks, and Westcon/Comstor.

Synnex’s stock was up US$4.95 (4.80 percent) to US$108.08 in trading midday Monday in the US, which is the highest the company’s stock has ever traded since going public in November 2003. From who will lead and control the combined company to its largest vendor partners and geographic footprint to a plan for US$200 million in synergies, here’s a look at five big things partners need to know about the Synnex-Tech Data merger.

5. Deal will bring together two very large HP Inc. businesses

Synnex and Tech Data will become the 60th largest company in America once they join forces, according to the Fortune 100 rankings, with US$57 billion of annual sales. The joint operation will have more than 150,000 channel customers and 22,000 employees.

The combined company will support more than 200,000 products and services across 1,500 vendors and OEMs and serve customers in more than 100 countries in the Americas, Europe and Asia-Pacific regions. Both companies have a large HP Inc. business, with the printer and PC giant accounting for 12 percent of Synnex’s sales and 10 percent of Tech Data’s sales in fiscal 2020.

Tech Data also works very closely will Apple and Cisco, with the two companies accounting for 16 percent and 10 percent, respectively, of the IT distributor’s sales in the fiscal year ended Jan. 31, 2020. Aside from HP Inc., Synnex’ primary OEM suppliers are Asus, Cisco, Google, Hewlett Packard Enterprise, Intel, Lenovo, Microsoft, and Samsung, according to a Securities and Exchange Commission (SEC) filing.

4. Deal will boost Synnex’ earnings by more than 25 percent in year after close

The merger is expected to close in the second half of 2021, and generate US$100 million of optimization and synergy benefits in the first year after closing and some US$200 million by the end of the second year. The joint company had US$1.5 billion of earnings before interest, taxation, depreciation, and amortization (EBITDA) over the past 12 months and is expected to have US$4 billion of debt at close.

The deal is expected to be more than 25 percent accretive to Synnex non-GAAP diluted earnings per share in the first year following close. The company is also targeting modest dividend growth over Synnex’ current US$0.20 per share dividend.

Synnex and Tech Data will have US$4.5 million in liquidity when their merger closes, consisting of roughly US$1 billion in cash as well as a US$3.5 billion available from a revolving credit facility. MiTAC Holdings, which with its affiliates owns approximately 17 percent of Synnex, has agreed to vote its shares in favor of the transaction.

3. Tech Data’s Hume will lead company, but Synnex will control board

The combined Synnex-Tech Data will be led by Tech Data CEO Rich Hume, 61, with Synnex President and CEO Dennis Polk, 54, serving as executive chair of the company board. Hume joined Tech Data in March 2016 as EVP and COO, and was promoted to CEO in June 2018 when Bob Dutkowsky retired. Before joining Tech Data, Hume spent three decades at IBM, which included time in a channel leadership role.

Polk’s time with Synnex dates all the way back to February 2002, and includes many years in the COO, CFO and SVP of corporate finance roles before being tapped to replace the retiring Kevin Murai as president and CEO in March 2018. Synnex will own a majority stake in the combined company and will therefore get to appoint most of the board members. Both Hume and Polk will serve on the board.

Specifically, Synnex shareholders will have a 55 percent stake in the joint company, and the company will appoint six people to the 11-member board. Apollo Global Management, meanwhile, will own 45 percent of the combined company and initially appoint four directors to the board, two of whom must be independent. Private equity firm Apollo bought Tech Data for US$5.4 billion in June 2020.

2. Company will have array of endpoint, advanced products, services

Synnex and Tech Data will be well-situated to serve the SMB, corporate, consumer, government and industrial markets with endpoint and advanced products as well as specialised services.

The companies said they’ll benefit from highly complementary product line cards and the ability to bring comprehensive Everything-as-a-Service (EaaS) offerings to the market.

Both companies trace their origins back to the endpoint devices arena, which includes PCs, mobile, peripheral and software. The companies in 2017 beefed up their presence in the advanced products space – which includes servers, analytics, hybrid cloud, networking and security – through Tech Data’s US$2.6 billion buy of Avnet Technology Solutions and Synnex’s US$830 million buy of Westcon Americas.

The company combined with offer a variety of services including maintenance, lifecycle/renewal, components, micro-processors and Hyve, a Synnex service supporting the hyper-scale data center build-out market. Tech Data bought DLT Solutions, for US$210 million to accelerate growth for partners serving the U.S. federal, state and local government markets.

1. Synnex, Tech Data play in 5 continents, 100 countries

The combined Synnex-Tech Data will generate US$57 billion of revenue from more than 100 countries across five continents.

In the Americas, Synnex and Tech Data have operations in 11 countries, US$34 billion in revenue, and 12,000 employees. Synnex and Tech Data are roughly the same size in the region, with Tech Data generating US$16.6 billion in Americas sales in the fiscal year ended Jan. 31, 2020.

In Europe, the Middle East and Africa (EMEA), Synnex and Tech Data have operations in 26 countries, US$20 billion in revenue, and 8,000 employees. Virtually all that revenue is from Tech Data, which generating US$19.1 billion in European sales in the fiscal year ended Jan. 31, 2020. Neither Synnex nor Tech Data has any presence in Africa.

In Asia-Pacific, Synnex and Tech Data have operations in 13 countries including Australia, US$3 billion in revenue, and 3,000 employees. Synnex is slightly larger in the region, with Tech Data generating US$1.3 billion in Asia-Pacific sales in the fiscal year ended 31 January, 2020.