Avnet Inc. has done it again. Having completed some 40 acquisitions between the early 1990s and 2001, which transformed it from a U.S.-centric sales channel to a global supply chain management powerhouse, the components and IT distributor had settled into a strategy of organic growth over avarice.
With one exception: the opportunity to enter new markets.
In what may prove to be its most significant acquisition to date, Avnet (Phoenix) Tuesday annouced a deal worth $676 million to acquire Memec Group Holdings Ltd., a global semiconductor distributor with a specialty in engineering support and a strong footing in Asia--including Japan, where no other U.S.-based distributor has a local presence.
Memec's business in Japan is on the order of $150 million annually, placing it among the top 20 or 25 distributors in the country, according to Roy Vallee, chairman and chief executive of Avnet, on a conference call discussing the acquisition.
"From our perspective, it creates a beach head," Vallee said. "We're not expecting overnight success, but I do believe we will be able to add suppliers and supply chain services."
Memec also has a strong presence in China. As a combined entity, the companies will have a $2.1 billion business with approximately 1,800 people in Greater China, Vallee said.
Location is only part of the story, however. Avnet also coveted Memec's well developed design capability. Approximately 1,800 of Memec's 2,400 employees are field-application engineers or technical sales people trained to help customers select components at the earliest stages of product design.
The combination of Memec's design chain expertise with Avnet's supply chain services business should create stronger relationships, both with customers and suppliers, according to Vallee.
In the fast-growing Asian market, for example, "it has become increasingly important to have a technically astute sales and marketing force that can help customers make decisions early in the design process," Vallee said.
Today, the Asian distribution landscape is highly fragmented, and suppliers are beginning to question to cost and efficiency of having many small distributors sell their products. "As business migrates to Asia, suppliers will want to work with the distributor with the largest technical sales force," he added.
Under terms of the deal, Avnet will pay stock and cash valued at approximately $676 million for San Diego-based Memec, including the assumption of approximately $194 million of Memec's net debt.
Avnet expects to achieve $120 million in operating expense savings by eliminating redundancies in operations, systems, facilities, and some areas of management. Vallee said the company does not plan to layoff any sales or FAE resources.
Just five years ago, Memec regained independent status after Avnet and rival Arrow Electronics divvied up the assets of no. 3 distributor VEBA Electronics AG, the former parent of Memec. At that time, Memec was sold to a venture capital group.
Memec filed for an initial public offering in 2004, but its plans were scuttled by a mid-cycle inventory correction last summer.
Memec, which ranked no. 5 on Electronics Supply & Manufacturing's Global 30 franchised distributor listing for 2003, generated revenue of approximately $2.3 billion in calendar year 2004. It's operating units include specialist distributors Insight, Impact, and Unique; engineering services unit Memec Design Services; supply chain services unit Memec United; and a catalog distribution operation known as Memec Express.
Avnet is the largest global franchised distributor according to the 2003 Global 30, with $9.5 billion in total revenue. Memec will be integrated into Avnet's components distribution division, known as the Electronics Marketing Group. Upon completion of the acquisition, Avnet EM will have anticipated annual sales of more than $8.5 billion.