It’s a great deal for Ingram’s stockholders -- which include many of their channel partners. But for their businesses, will it be business as usual.
|Distributor Ingram Micro has entered into a definitive agreement through which Tianjin Tianhai Investment Company, Ltd., a Chinese transportation and logistics giant, will acquire them for approximately $6.0 billion ($38.90 per share) in an all-cash transaction . When the deal closes, which the parties say they expect will be in the second half of 2016. Ingram Micro will become a part of HNA Group, the largest stockholder of Tianjin Tianhai.
In stating its reasons why it decided to sell itself, Ingram was frank in stating that they got a great price which rewards their shareholders. The $38.90 price is approximately 39 per cent over the average closing share price of Ingram Micro for the 30 trading days ended February 16, 2016. That kind of premium for a tech high flyer is good, but for a distributor like Ingram, which runs a low margin business that depends on high volumes for profits, it’s REALLY good. Since the company’s primary fiduciary duty is to its stockholders, that’s an admirable job. In addition, since many of Ingram’s loyal partners also hold stock in the company, they will realize a nice personal gain from the deal.
Partners, however are also concerned about their businesses after the deal closes — just as Ingram Micro’s employees are naturally concerned about their employment. To address those concerns the company has sent out a letter to each group with a common theme — relax. They say the deal will not affect the way the company does business.
“More than anything, this merger represents a change in our equity ownership and will not impact the way we do business together,” the letter to partners stated. “HNA Group has assured us that Ingram Micro will continue to be headquartered in Irvine, California, our management team and associates are all expected to remain in place and our local country operations and execution on our strategies will continue unaffected. Our commitment to maintaining and building on our trusted relationship with you as a value-add partner will not change, and we remain dedicated to our core values that have made Ingram Micro an industry leader.”
The letter to employees stressed the same theme of continuity.
“I would like to assure you that it is business as usual at Ingram Micro and very little, if anything, is expected to change as a result of this merger,” it stated. “In fact, HNA Group has assured us that very few Ingram Micro positions will be impacted by this merger. Our brand, strategy, purpose and values remain unchanged. HNA Group has assured us that they are committed to maintaining the leadership and the core values that have made Ingram Micro a trusted partner, an industry leader and a great place to work.”
Both letters stressed that HNA Group has a long history of investing in multinational companies and partnering with leading, well run brands to support and accelerate management’s strategic initiatives. These include Zurich-based, Swissport International, the world’s largest provider of aviation ground and cargo handling services, and Avolon, a formerly NYSE-listed provider of aircraft leasing and lease management services, as well as U.S.-based companies such as Red Lion Hotels. Customers and partners were assured that HNA Group fully supports Ingram’s strategic direction, and that their substantial financial and operational resources will assist in its realization. and has assured us it fully supports Ingram Micro’s strategic direction.
Alain Monié will continue to lead the company as CEO, and Ingram will operate as a subsidiary of Tianjin Tianha.
Darren Bibby, Program Vice-President, Channels and Alliances at IDC, thinks Ingram’s message of ‘move on, nothing to see here’ is likely accurate – with one possible caveat.
“This is no different than a holding company adding another company,” he said. “Does a company bought by Berkshire Hathaway change the way it does business because they acquired it? I would expect that things should be the same as as usual, at least for the foreseeable future.”
The caveat is the potential that the deal could become a political issue.
“There is the whole issue of spying, and the Huawei debacle is out there, but we haven’t seen or heard anything like that in this deal,” Bibby said. “However, this is a curious acquisition in some ways. There are no apparent synergies between Ingram and Tianjin Tianhai. And it’s not like Ingram is an interesting business to acquire. It’s a low margin, high volume, well-run company. Ingram is a leader in many areas. They are doing their seventh cloud summit, and how many distributors can say that? So there is always some concern that some kind of ‘voodoo’ story [related to security] will come out and lose them some partners.”
Diane Krakora, CEO of PartnerPath, a consultancy which designs and implements channel and alliance programs, also wondered if national security concerns would be raised, since Ingram is a distributor of some of America’s most advanced technologies — that aren’t even sellable into China. But she also indicated there could be some issues relating to the unique culture of distribution.
“There are always things to be concerned about in a M&A, and particularly of this size and particularly from a foreign entity,” she said. “My concern lies primarily with the acquirer understanding (or not) the nuances of channels.
“Distribution has two sets of customers – the solution providers and the vendors,” Krakora continued. “They have an intricate role as ‘middleman’ between these two parties with relationships and trust being the key ingredients on both sides. I realize Tianjin Tianhai is a large company that will understand the financial and operational aspects of Ingram’s business – that it is a low margin, high volume business where excellence is in streamlining and optimizing operations. However I don’t know if they understand the relationship aspects of this business. Many of Ingram’s solution provider customers have been customers for decades, believing the management team’s vision and direction. That is ALWAYS at risk in M&A and I think particularly so with an acquisition that is Chinese based. We don’t look to China for examples of awesome channel-centric companies.”
Carolyn April, Senior Director, Industry Analysis at CompTIA, also has some concerns. Aside from the fact that the deal still has to be approved by the SEC, which Ingram seems to think will be routine, but may not be in an election year, the sale raises larger issues about the impact of the cloud on the distribution business.
“I think that this is indicative of what’s going on in the industry with regard to the distributors and cloud, and what their roles will be,” she said. “Partners are now becoming so much more services centred. Most channel companies today derive most of their revenue from services. Distributors are being forced to change their old model. Even though Ingram is a leader in the cloud among the broadline distributors, there is still pressure there. That’s not what Ingram says, but I wouldn’t expect them to acknowledge it anyway, even if it was a factor. This whole cloud transition and its impact is something partners definitely need to watch.”
Several Canadian Ingram Micro reseller partners contacted by ChannelBuzz indicated that was precisely their strategy – do nothing as far as their strategy goes now, wait, and watch closely.
“A wait and see approach is a sound approach to take for partners,” April said. “When anything this major happens, there is always cause for concern, and there could certainly be some changes. But whether that’s good change, bad change or neutral, at this point, we just don’t know.”