8 Unanswered Questions From Tech Data's Acquisition Of STG

Tech Data Acquires Solution Provider

IT distributor Tech Data on May 27 disclosed plans to acquire Phoenix-based data center services solution provider Signature Technology Group.

The $27.6 billion distribution giant's move to acquire a solution provider, a deal that closed June 1 for an undisclosed amount, raised concerns for some of Tech Data's solution provider partners over the possibility of the company selling direct. Tech Data CEO Bob Dutkowsky stated multiple times during the Clearwater, Fla.-based company's earnings call the next morning that "this is a partner-led model."

The company head then spoke exclusively with CRN and addressed these concerns, but some questions remain. Here's a look at eight of them.

1. Will Tech Data sell direct?

Dutkowsky has tried to quell partner concerns, but stopped short of pledging that no STG sales will go direct.

Dutkowsky told CRN that this "is a partner-led business model." When asked to clarify if "partner-led business model" means zero sales will be direct, he replied, "We don't disclose anything about percentages."

Chuck Bartlett, Tech Data's senior vice president of advanced infrastructure solutions, told CRN in a separate interview that Tech Data's investment in STG going forward will be focused entirely on its channel business and not its direct sales team. But he said existing STG partners will be free to decide whether they wish to continue dealing directly with the STG sales team or whether they wish to engage a Tech Data channel partner, indicating there will likely be at least some direct sales going forward.

2. Will Tech Data purchase other solution providers?

Tech Data's acquisition of a solution provider could be a sign of things to come.

"I can tell you that our vendor partners are asking us to offer more services like this to the channel," Dutkowsky told CRN. "Our vendor partners are encouraging Tech Data to find more ways to add value to their products to make it easier for the channel to install their products."

Bartlett said Tech Data will continue to look at the market for opportunities to expand its capabilities, but wasn't sure if that will lead to another solution provider acquisition.

3. Will STG have access to client contacts from Tech Data channel partners?

Some longtime Tech Data partners are concerned that the distributor could now use their clients' information to sell direct.

"I never thought they would do something like this," Ashok Thakur, president and CEO of Computer Consultants Network, Hicksville, N.Y., told CRN. "Now they can take all the information regarding our clients and use it against us and use it to enhance their business. It's definitely a big negative."

As a major distributor, Tech Data has access to sales history of end users through its channel partners. Would STG be able to access that information and use it for its direct sales?

4. Will Tech Data partners distance themselves from the distributor?

How will solution providers who are wary of Tech Data's intentions express their displeasure? Will they do less business with Tech Data? Will they look to replace Tech Data with a different distributor?

One channel partner based in STG's home state of Arizona told CRN that he was considering doing less business with Tech Data.

"[This deal] could jeopardize [Tech Data's] relationship with partners such as myself," the solution provider said.

5. Will other distributors launch initiatives to poach Tech Data partners?

With some Tech Data partners disgruntled, other distributors have an opportunity to capitalize.

There are many distributors who pride themselves on selling exclusively through the channel. ScanSource, for example, says it has a companywide policy that categorizes direct selling as a fireable offense. Will competitors use the STG deal as a reason to pounce?

The other major distributors are playing coy, though. Arrow, Avnet, Ingram Micro and Synnex all declined to comment or failed to respond to questions regarding whether they're making a concerted effort to capture more business from service-oriented Tech Data partners in the wake of the deal.

6. Will other distributors respond with similar VAR acquisitions?

Tech Data isn't the first distributor to buy a solution provider. For example, Ingram Micro acquired Minnesota-based IT services company Rollouts in July of last year. And Arrow acquired McLean, Va.-based public sector powerhouse immixGroup, No. 37 on the 2014 CRN Solution Provider 500, in March.

Howard Goldberg, president of Arrow's North America enterprise computing solutions business, told CRN that a very limited number of suppliers -- amounting to a very small amount of revenue -- ask immixGroup to fulfill business directly with their government end users.

ImmixGroup, however, doesn't have an end-user sales organization, Goldberg said, and requires new customers to go through one of its more than 1,000 public sector solution provider partners.

7. Will Tech Data's competitors be blacklisted from STG services?

As Dutkowsky repeatedly noted, Tech Data's competitors sell STG services today, though he declined to specify which ones. He also opted not to comment when asked how long that will continue after the acquisition closes.

An Avnet spokesperson said it has not done any business with STG "in recent memory," while Arrow, Ingram Micro and Synnex all declined to comment or failed to answer questions on their existing relationship with STG and how that could change going forward.

8. Will the addition of STG stop Tech Data's sales downturn?

Tech Data revealed a 12 percent drop in its net sales, to $5.9 billion, for the first quarter of fiscal year 2016, down from $6.7 billion in the same quarter last year. In the U.S., Tech Data saw its revenue decline by more than 6 percent, to $2.3 billion.

That's in stark contrast to Tech Data's main broadline distribution competitors. Synnex grew its revenue 5.8 percent, to $3.2 billion, in the most recent quarter, while Ingram Micro boosted sales by 2.5 percent globally, to $10.64 billion, and by 7.2 percent in North America, to $4.44 billion.

Could Tech Data's strategy of adding services via the acquisition of a solution provider turn its business around?

Michael Novinson contributed to this slideshow.