HNA Acquisition of Ingram Micro Closes, Serves as Microcosm of the Channel December 2016HNA Acquisition of Ingram Micro Closes, Serves as Microcosm of the Channel December 2016
China-based HNA Group’s $6 billion acquisition of distributor Ingram Micro closed this week, marking the completion of one of the most significant M&A deals in the channel this year.
December 6, 2016
China-based HNA Group’s $6 billion acquisition of distributor Ingram Micro closed this week, marking the completion of one of the most significant M&A deals in the channel this year. The deal was first announced in February, and much of the last year has been spent navigating the tricky regulatory waters in both China and the U.S. At the same time, Ingram announced several changes in its board and senior leadership.
Ingram Micro, the world’s largest IT distributor, is considered by many industry experts to serve as a microcosm of the channel. Marty Wolf, president and founder of martinwolf M&A Advisory, told The VAR Guy earlier this year that broadline distribution and the channel are both in the midst of a sea change. And because Ingram sits at so many chokepoints within the channel, the company’s moves both reflect and influence overall business IT trends.
Global Market Opportunities
So what does the distribution giant’s acquisition by a Chinese conglomerate indicate? For one, the globalization of IT continues to be a growing trend, though if the Trump administration follows through on some of its rhetoric during the campaign, tensions in business relations between the U.S. and China may escalate quickly. In fact, 2016 has seen a marked rise in populist movements throughout the U.S. and Europe, with more calls for protectionist policies.
Though the deal cleared regulatory hurdles in both countries, it wasn’t without some tense moments. In July, the Shanghai Stock Exchange demanded an explanation as to why Ingram’s net profit margins significantly declined between 2013 and 2015, voicing concerns about the company’s credit rating and probability of future success. The Exchange also had questions surrounding a lawsuit filed against Ingram Micro by one of its shareholders claiming the company “sold itself too cheaply and via an unfair process.”
Being Nimble is Necessary
The deal is also a good example of the industry shifting to accommodate on-demand, agile market demands. HNA’s business is built on transportation and shipping. Combined with Ingram Micro’s logistics and supply chain capabilities, the new entity has nearly unparalleled opportunities to streamline its delivery operations. The hope is that this will provide the distributor the ability to increase revenue in high growth regions and provide existing customers access to new markets, said Adam Tan, vice chairman and CEO of HNA Group, in a statement.
Like the rest of the channel, distribution is adopting new technology at unprecedented rates. Concurrently, the role of distributors is changing as they provide more education, package end-to-end solutions and begin to foster partner-to-partner alliances. The “emerging channel,” including non-traditional companies such as independent software vendors, system integrators and shared service providers are requiring new routes to market. The ability to be agile will be critical to future success for disties, and the capabilities Ingram will gain from HNA will give it a significant edge.
Tim Harmon, industry analyst with Forrester, told The VAR Guy earlier this year that many tech vendors that go to market through two-tier distribution want to reduce the number of distributors they use, and that the Ingram Micro deal is the beginning of significant M&A activity coming in the distribution sector. “There are too many distributors in the world,” he said.
Harmon also said that the distribution sector trails behind other parts of the tech industry in terms of digital communications and standards for efficiency. “In general, it’s incredible how antiquated the digital communications are between tech vendors and distributors, and between distributors and value added resellers,” he said. “There’s way too much business transacted in the tech value chain on the back of email and spreadsheets.” HNA’s money and technical savvy could help Ingram catch up.
Demand for Diversity
Alongside the announcement of the deal closing, Ingram announced several changes in leadership. Notably, the company has appointed its first female CFO. As Bill Humes transitions from his current role as CFO to a seat on the board, Gina Mastantuono will take his place. “Gina, who was recently honored by the National Diversity Council as one of the Top 50 Most Powerful Women in Technology, has been an invaluable addition to Ingram Micro since joining in early 2013,“ wrote CEO Alain Monie in an internal letter to employees. “We have been preparing Gina for an opportunity like this and I am extremely pleased to have her in this role.”
Along with the CFO position, Ingram made a change in the role of executive vice president, secretary and general counsel. Larry Boyd, who currently occupies the position, will retire and assume a seat on the board. Taking his place is Augusto Aragone, who originally joined Ingram Micro as regional counsel for Latin America. Aragone has worked in Latin American legal counsel and logistics since 2002.
The addition of a female and a Latin American specialist to Ingram’s executive leadership clearly speaks to both the focus on diversity and the increasing globalization in IT. The lack of women in leadership positions in technology has been a hot topic of late, with a slew of statistics coming to light that illustrate the problem. Companies like Microsoft have implemented formal policies designed to increase the number of female employees, and Mastantuono’s appointment is big news for diversity advocates.
Moreover, Ingram has a significant presence in Latin America. Luis Ferez, General Director of Ingram Micro Mexico, told The VAR Guy that the opportunity for the channel in Mexico, for example, is huge. Rapidly developing infrastructure, a huge millennial population and new technological innovations are combining to open new markets that Ingram is eager to capitalize on, especially in the SMB space.
“How to work and how to explode the SMB segment,” he said, “I would say that would be the monster, or biggest opportunity.”
Aragone’s knowledge of Latin American regulations and legal structures will be beneficial as the company grows operations in countries with undeveloped infrastructure and unfamiliar government statutes and regulatory bodies.
If partners want to try to predict what’s going on in the channel in 2017, they would do well to carefully watch Ingram Micro’s next steps.
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