Ingram Micro ownership is returning stateside with an announcement Wednesday that the distributor will be purchased by Los Angeles-based private equity firm Platinum Equity Partners for US$7.2 billion.
The deal ends four years of ownership by HNA Group, a massive Chinese air carrier that embarked on a heavily leveraged acquisition binge that has since hobbled its growth and forced it to divest property as it struggles to make payments on its debt. HNA told Chinese regulators in May that it missed a $750 million payment on a US$4 billion loan that was used to buy Ingram Micro.
The acquisition of Ingram Micro is expected to close in early 2021. Platinum Equity Partners, which was founded by Chairman and CEO Tom Gores in 1995, has US$23 billion in assets under management.
Here is an in-depth look at the acquisition and what it means to the distribution business and the channel.
Removes financial cloud hanging over Ingram Micro
The Platinum Equity deal removes the financial cloud hanging over Ingram Micro as a result of the financial troubles of previous owner HNA Group and its HNA Technology Co. subsidiary.
In April, HNA Group said via social media that it had “reached the point of life and death” due to the revenue impact from the coronavirus, according to the Financial Times.
“This is a big test for all HNA employees. Now HNA has reached the point of life and death,” it wrote in an unsigned letter posted to its official Chinese social media account that was translated by the Financial Times.
Ingram Micro said the Platinum Equity deal will provide it with “added flexibility and resources to accelerate growth and execute on strategic initiatives. The deal opens the door for Ingram Micro to leverage what it called Platinum Equity’s “industry experience, financial resources and global operating expertise.”
Partners are big beneficiary of distribution renaissance
The blockbuster Platinum Equity buy marks a re-emergence of distribution that will bring big benefits to solution providers, said industry executives.
The deal, which comes just six months after distributor Tech Data was acquired by Apollo Global Management, brings a powerful one-two private equity punch to the distribution market that will lead to creative new solution offerings for partners, said executives.
“With Ingram now owned by Platinum and Tech Data owned by Apollo, there is going to be a renaissance in distribution,” said Martin Wolf, president of martinwolf M&A Advisors, one of the top channel investment advisory deal-makers. “It is good for the channel to have heavyweights [like Platinum and Apollo] between them and the vendors. It is very good news for partners.”
Wolf said he expects Platinum Equity to “significantly improve” Ingram Micro’s business. “Platinum has real size and real reach,” he said. “They have a very different perspective than being owned by a Chinese company.”
Wolf said he expects both Platinum and Apollo to drive new value for solution provider heavyweights. “These companies will be helped by having these [private equity] behemoths fighting on their behalf,” he said. “It’s very favorable for the channel. Tech Data’s acquisition by Apollo changed the profile of the company completely.”
Removes the China factor
Given the current political and trade issues between the US and China, there have been continuing concerns in US government organizations and some private companies about dealing with Chinese-owned businesses. This has been the case with Ingram Micro, despite the fact that the distributor has been saying that there is a wall around the company to prevent influence from the Chinese government.
Those concerns should go away, US-based channel partners told CRN USA. Dao Jensen, CEO of Kaizen Technology Partners, a San Francisco-based solution provider, told CRN that her company was the largest Amazon Web Services partner through Ingram Micro in 2019, but for government business with AWS it has worked with rival distributor Tech Data instead.
“The public sector business could really grow in the cloud,” Jensen said. “It would have been nice to have worked with one distributor.
Bob Venero, CEO of US solution provider Future Tech, told CRN USA he also sees the Platinum Equity investment as a big win for partners with government business.
Once the deal to purchase Ingram Micro from its China-based owner is finalized, the distributor has the opportunity to increase share in the U.S. market to solution providers selling to federal government customers, Venero said. He said when Ingram Micro was acquired by HNA Group four years ago, he pulled a minimum of US$20 million in revenue from the distributor.
“We did not want to put our government customers at potential risk because of the Chinese ownership,” he said. “Now that Ingram is being acquired by Platinum, there is a very good potential that we will shift some of that business back to them, assuming Platinum Equity does not try to drive higher margins by immediately raising prices to VARs for a quick return on their investment.”
In February, Ingram Micro fiercely defended its independence in the wake of a report that HNA Group, could be nationalized by the Chinese government.
“The U.S. government mandates that we continue to run our business as a stand-alone company, consistent with our pre-HNA acquisition practices,” an Ingram Micro spokeswoman said in a statement to CRN at that time. “So any change in our ownership does not impact the fact that Ingram Micro maintains independent operational and financial strength. It is business as usual and will continue to be business as usual.”
Bigger things to come: expect more M&A
With the investment from Platinum Equity, a global investment firm with about US$23 billion of assets under management, Ingram Micro gets a new long runway for future growth.
That includes potential mergers and acquisitions going forward, said Matthew Louie, a managing director at Platinum Equity, in a statement.
“Ingram Micro‘s scale, diverse customer and vendor relationships and track record for innovation create the perfect platform for us to help accelerate growth, both organically and through additional M&A,” Louie said in that statement. ”It also provides exciting opportunities in one of the fastest-growing sectors in technology as corporations continue to migrate to cloud or hybrid solutions.”
That kind of investment plays well with Ingram Micro’s financial situation, which is strong despite being owned by China-based HNA, which has been saddled by debt from a variety of investments outside of its home country.
While Ingram Micro has been privately held since its acquisition by HNA, the distributor has been fairly open about its finances. The company in September reported second fiscal quarter 2020 sales that were weaker than that of a year ago as the negative impact from the COVID-19 coronavirus pandemic outweighed improved revenue from its Technology Solutions business and its e-commerce solutions demand.
For its second fiscal quarter 2020, which ended June 27, Ingram Micro reported revenue of US$10.5 billion, down nearly 9 percent from the US$11.5 billion the company reported for its second fiscal quarter 2019.
However, net income on a GAAP basis of US$142.1 million rose 47 percent year over year compared with last year’s $96.6 million. The increase in profitability came from the robust performance of its Technology Solutions and its commerce and life-cycle services businesses, which led to a better mix of higher-margin sales, especially those related to work-from-home needs.
Ingram Micro gets a rock star platinum lead partner
Platinum Equity Partner Jacob Kotzubei, a “rock star” tech investor who has helped drive transformations at a number of high-profile channel companies, is the driving force behind the Ingram Micro deal.
Kotzubei’s participation in the Ingram Micro deal signals good things ahead for Ingram Micro, said Wolf.
“Jacob Kotzubei, the lead on this deal, has probably created more value than any non-founder in the last 20 years in the channel,” said Wolf. “When you look up ‘rock star’ in the dictionary you see his photo. He follows through on his commitments and makes things happen.”
Among the deals that Kotzubei has driven in the channel include Data Blue, Compucom Systems, Pomeroy and Canvas Systems, which was represented in the Platinum Equity deal by martinwolf M&A Advisors.
“We know Ingram Micro and the industry very well and have been investors in the technology and IT distribution and solutions sectors for more than a decade,“ said Kotzubei in a prepared statement. ”We have been pursuing this opportunity for a while and have been impressed by the company‘s ability to thrive while continuing to navigate these fluid and challenging times. We will work closely with the Ingram Micro leadership team to sustain that momentum and build on the company’s success.”