Avnet To Acquire Data Center Distributor Bell Micro For $252 Million

Officials point to Bell Micro’s data center and embedded systems business, expanded customer base, strong financial position.

Avnet Inc. said it will acquire Bell Microproducts Inc., a $3 billion storage-centric distributor, for $7 per share or $252 million in net equity value, adding heft to its data center and storage capabilities, depth to its embedded computing solutions business and strength to its positions in Europe and the Americas.

Terms of the acquisition, which Avnet officials said was the largest—using revenue as a measure-in company history, include assumption of a net debt position for Bell Micro of $342 million, yielding a total transaction value of $594 million. The deal has been approved by the Boards of both companies and is expected to close no later than the end of July 2010.

Officials said that following regulatory approval and closing, Avnet’s total annual revenue, including Bell Micro, will jump to some $20 billion. The distributor said that the transaction is expected to produce a Return on Capital Employed (ROCE), a yardstick of returns realized from capital, of at least 12.5 percent once the companies are fully integrated.

Bell Micro’s entire distribution operation will be folded into Avnet’s operating groups, namely, Avnet Technology Solutions and Avnet Electronics Marketing. Bell employs some 1,900 people in more than 50 offices worldwide.

In addition to its distribution business, Bell maintains single-tier subsidiaries Total Tec Systems Inc., an Edison, N.J.-based solution provider, and, ProSys Information Systems, an Atlanta, GA-based IT consultant. Those organizations will remain as stand-alone operations, reporting to Rick Hamada, Avnet chief operating officer. In 2009, approximately 15 percent of Bell Micro’s total sales were generated by Total Tec and ProSys.

Avnet said it will explore “strategic alternatives” for Bell Micro’s single-tier business, stating it will do so in deference to its core two-tier distribution operations in North America.

Roy Vallee, Avnet chairman and chief executive, said that Bell Micro’s assets in embedded technology and data center products, particularly its distribution strength in storage, along with its ability to deliver the Latin American market were central to Avnet’s interest in making the deal.

“We are very excited about the opportunity to build additional scale and scope in storage and computing solutions as well as increase our presence in the fast-growing Latin America market,” Vallee said.

Sales in Latin America contributed about 17 percent of Bell Micro’s revenue in 2009, with North America accounting for 42 percent and EMEA 41 percent of the remainder.

“Bell’s position in data center products and embedded systems complements Avnet’s current strategies and creates opportunities for cross selling,” he said. “Bell’s position as one of the leaders in hard disk drive distribution substantially increases Avnet’s exposure to this product segment which is currently focused on embedded computing.”

Deal prompts Avnet to revise Q3 revenue estimates upward

Don Bell, Bell Micro’s founder and chief executive, said that the transaction will deliver “excellent value to our shareholders while providing an enhanced platform from which our employees can continue Bell’s heritage of helping suppliers reach our served markets with increasingly complex solutions.”

Bell said that Avnet’s “financial resources and global infrastructure” will help the combined organizations to continue to provide “industry leading value to our customers.”

Bell is expected to remain with the merged companies in a capacity not yet defined.

Based on the acquisition, Avnet revised its fiscal third quarter 2010 revenue estimates upward, expecting its Electronics Marketing group to post sales between $2.75 billion and $2.85 billion as compared with a prior range on the low end of $2.55 billion.

The company also revised revenue expectations for its Technology Solutions group for the period, upping the low end of the range from $1.55 billion to $1.70 billion while holding the upper end at $1.85 billion.

Avnet said that it expects consolidated sales for the quarter to be between $4.45 billion and $4.70 billion. The company previously said that it expected Q3 sales to range from $4.1 billion to $4.7 billion.

TAGS: data center,acquisition,Avnet,Bell Micro,Storage

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