Like many readers of EBN, I got my start in the technology industry working with chip distributors. My first job after college was selling DSPs and other associated chips for Texas Instruments, and naturally I worked alongside distributors like Avnet and Arrow Electronics on a daily basis.
Clearly the landscape of the semiconductor distribution market has changed over the last 20 years, consolidating through many mergers and now dominated by Avnet and Arrow, each with more than $20 billion in annual revenue. What does the current market for M&A in the chip distribution industry look like?
In the last 12 months, data provided by Capital IQ shows that there were 50 announced M&A transactions in the sector. Geographically, nearly half of the action (49 percent) was in Asia, followed the United States and Canada (29 percent), and Europe (20 percent). There were no blockbuster deals greater than $1 billion, and in fact none announced were greater than $100 million, with most being much smaller.
Smaller deals generally indicate that buyers were focusing on additional niche capabilities, not the absorption of large competitors to gain large market share and revenue.
Not surprising is who is making the most deals. In the last 12 months, according to Capital IQ, Avnet acquired eight companies, followed by Arrow Electronics doing three deals, and several other smaller players making one acquisition here and there. Clearly, Avnet continues to execute on its strategy of growing in part by acquisition.
Avnet is as an industry leader, with M&A a key part of its strategy. A quick view of Avnet's Investor Relations page shows that Avnet has made more than 60 acquisitions in 20 years. These acquisitions have undoubtedly aided Avnet in its current market presence with more than 100,000 customers, 300 suppliers, and nearly $26 billion in fiscal-year (FY) 2012 revenue.
Reading through Avnet's 2013 Analyst Day presentation provides more detail about the company's strategy and recent transactions. From FY2009 to FY2011, Avnet focused heavily on growing revenue and its international footprint, and less so on additional products or services. These 17 acquisitions added more than $5 billion in revenue according to the company. From FY2012-13, Avnet has accelerated its deal total through M&A transactions, adding $2 billion in revenue.
It is an open question as to what kind of M&A activity this market will produce moving forward. About half of the worldwide market share in semiconductor distribution is held by Avnet, Arrow, and WPG Holdings, leaving a vast array of smaller distributors to serve the other half of the market. It is possible that at some point several of the smaller players will consolidate in order to compete with the big players, but that is yet to be seen.
Additionally, the larger players may seek to grow by adding new services, as evidenced by Avnet Technology Solutions' acquisitions of several IT services companies in the last year. Regardless of how it shakes out, the next year looks to be interesting to watch.
If you are interested in more details about the deals I've seen while researching this blog, please feel free to email me.