Two storage-focused equipment distributors converged today as Bell Micro agreed to be acquired by Avnet for $594 million, $342 million of which will go to pay off Bell Micro’s debts.
The impact of this announcement is mainly being felt in the IT channel, with speculation in the industry focused on whether this move for Avnet is a means of lessening its dependence on Sun hardware products after Oracle said in January it would take Sun’s largest customers direct.
Enterprise Strategy Group founder and president Steve Duplessie blogged this morning that he doesn’t see the distribution market expanding again any time soon:
[T]here used to be a ton of big distributors, but they don’t seem to be around anymore–besides Avnet. Bell was a $3B giant, but just agreed to get purchased by Avnet for only $250M or so (net of debt). That’s one small multiple, which tells me you probably don’t want to be in the distribution business. Any business that requires outrageous capital, offers huge risk, and only has a shot of giving back fractions of a penny on revenue ain’t a business for me…In many ways, the distribution game has changed such that it seems impossible for anyone to get in at this point. It takes so much money and expertise to build up logistics and inventory management systems–who could possibly enter and make a run at it?
But he isn’t sure whether the deal will have much of an effect on pricing for storage end users, since manufacturers and not distributors tend to have more of an effect on pricing.
According to StorageIO founder and analyst Greg Schulz, “for the storage end user [this merge] should have little impact as [end users] buy from the VARs. The distributors like Bell, Ingram, Techdata, Avnet, Synex, and Arrow are the suppliers to the VARs on behalf of the manufacturers.”