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Ingram Micro and Tech Data, the No. 1 and No. 2 listed distributors of PCs, could be targets of private equity groups now that No. 3, CDW, has agreed to be sold, industry sources said.
Besides selling PCs and peripherals, the distributors also provide services such as installation and product support with recurring contracts that assure cash flow, making the companies attractive to PE buyers. That is one reason why listed CDW, of Vernon Hills, Illinois, agreed to a USD 7.3bn buyout by Madison Dearborn Partners of Illinois last month, said people familiar with that transaction.
Besides PE companies, computer industry sources suggested listed Dell of Texas, the No. 2 maker of PCs, could eye a distributor especially as CEO-redux Michael Dell vows to move the company more into services. Buying a reseller like listed Ingram Micro, of Santa Ana, California, or Tech Data, of Clearwater, Florida, would present problems, especially because they handle a diverse product line. The world of computer distributors is studded with collapses and bankruptcies including listed Vanstar, the former ComputerLand, and listed InaCom, as well as miscues by listed Radio Shack which sold its Computer City to Mexico’s CompUSA, shuttering half its US stores this year. Major electronics retailers like listed Circuit City Stores have slashed their payrolls to respond to lower prices.
After nearly 20 years at the helm, Tech Data Chairman Steve Raymund last October ceded the CEO’s job to Robert Dutkowsky. Dutkowsky had spent most of his earlier career as a top distribution executive for listed IBM, then for listed EMC.
The new boss has the opportunity to tweak Tech Data, which had been run conservatively by Raymund, a former US Foreign Service Officer brought in to succeed his father, said an industry banker. Raymund’s family owns only about 3% of the company, whose biggest holders included listed Axa of France, with 12.5% and listed Goldman Sachs, with 7.2%. Goldman Sachs recently raised USD 20bn for buyouts, such as that of listed Alltel of Arkansas, the No. 6 wireless service company.
Tech Data’s first-quarter net fell about 24% on charges for closing of some Middle East operations, to USD 9.9m, as revenue rose 9.4% to USD 5.5bn. Operating income on continuing operations, though, rose about 11%. A year ago, the company divested its European training business acquired in 2003 for USD 223m to private Global Knowledge of North Carolina, which is controlled by PE powerhouse Welsh Carson Anderson & Stowe.
The company derives about 55% of revenue from sales abroad and has particularly good ties to listed Hewlett-Packard of California, the biggest PC maker, which has beefed up its support for resellers.
Meanwhile, two other PE firms might look at Tech Data, suggested a veteran of technology buyouts. Carlyle Group of Washington is chaired by Louis Gerstner, the retired CEO of IBM who led the company’s turnaround from near-bankruptcy starting in 1993. Tech Data’s Dutkowsky was one of his key advisers.
Another prospect could be Clayton Dubilier & Rice of New York, which bought IBM’s PC printer unit, later selling its entire stake in the renamed, listed Lexmark International Group, which could be looking to re-enter the technical distribution sector. Last month, Clayton Dubilier sold VWR International of Pennsylvania, the largest laboratory products distributor to Madison Dearborn, the buyer of CDW.
Other large-sized PE firms that have invested in the sector include Providence Equity Partners as well as mid-sized GTCR Golder Rauner and its offshoot, Thoma Cressy Bravo. Both GTCR and Thoma Cressey have invested in distribution and services providers.
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