Shares of Tech Data Corp. (NASDAQ:TECD) jumped 22.2% Monday after the IT products distributor announced it will acquire Avnet's (NASDAQ:AVT) technology solutions business in a transaction worth $2.6 billion.
More specifically, Tech Data will buy the business from Avnet for a combination of $2.4 billion in cash and 2.785 million shares of Tech Data common stock. Tech Data also anticipates realizing roughly $200 million in present value of tax benefits, and expects the purchase to be "significantly accretive" to its adjusted earnings per share in the first year after closing. What's more, within two years after closing, Tech Data expects the combination will help it achieve annual cost savings of $100 million, driven by a combination of technology platform efficiencies, duplicated functions, and reduced corporate expenses.
"We are excited to announce this transformative transaction," said Tech Data CEO Bob Dutkowsky, "which creates a premier global IT distributor with the most diverse end-to-end solutions from the data center to the living room. This combination complements our value-added distribution capabilities in Europe and the Americas, while establishing Tech Data's presence in Asia-Pacific, which will be a new market for us."
For perspective, from a financial standpoint, Tech Data's pro forma revenue in the year ended July 31, 2016 would have increased from $26 billion to $35 billion, including an increase in revenue from higher-margin data center products growing from 29% of total sales to roughly 45%. Adjusted pro forma operating income last year also would have doubled, after accounting for expected cost savings. And the purchase will expand Tech Data's presence from 21 countries to 35.
The deal has already been approved by the boards of both companies. And though it's still subject to customary closing conditions and regulatory approval, the acquisition is expected to close in the first half of calendar 2017.
In the end, it's no surprise to see shares of Tech Data flying higher today with its expectations for cost synergies, an increase in the mix of higher-margin products, and significantly expanded geographic reach. But given the gravity of today's pop, and with shares trading near all-time highs, I wouldn't blame Tech Data investors if they wanted to take at least some of today's gains off the table.