If Avnet Inc. really wants Premier Farnell plc, it will have to write a much bigger check than the £691 million ($912 million) it has offered for the company. The acquisition target’s market value surged to nearly £729 million only one day after Avnet made its bid, indicating investors believe the British distributor can attract a higher valuation.
The bidding war will most likely happen. Dätwyler Group AG, a Swiss conglomerate with a British operating division, last month offered to pay approximately $867 million for Premier Farnell. Avnet’s offer for Premier Farnell represented a 12 percent premium on Dätwyler’s but it is very likely that the Swiss company will make a counter offer. Although Dätwyler investors generally weren’t too happy with its offer, the changing distribution landscape makes Premier Farnell a compelling addition to the company’s business groups, according to observers.
Which of these two rivals will eventually get Premier Farnell? Dätwyler has only indicated so far in press reports that it is reviewing its position and, as at the time of writing, had not improved upon the initial offer. If the Swiss company declines to jack up its offer Premier Farnell’s stock price will likely trend downward again towards Avnet’s offer price, handing victory to the American company. Under this scenario, investors will push down Premier Farnell’s stock price towards Avnet’s £1.85 per share offer. The global distributor may still have to sweeten the deal a bit but not by much. Of course, it can also walk away from the deal if Dätwyler raises its offer.
So far, the market is indicating Dätwyler will make a higher bid. It is also possible that a third rival could enter the bidding war, giving Premier Farnell an even higher valuation than Avnet’s already hefty premium on the stock’s more recent performance. Avnet says it wants Premier Farnell because the distributor can add to its roster of engineers and help with its focus on the high-service distribution market. The thirst for business operations that promise higher profit margins may push Avnet to go all out for Premier Farnell.
“Premier Farnell will bolster our strategy to provide a differentiated digital experience from product ideation through its lifecycle. Premier Farnell's customers gain access to an extensive suite of supply chain services allowing them to ramp new products to production volumes. Our customers will be able to do more technical research online through the services provided by Premier Farnell,” said Gerry Fay, president of Avnet's Electronics Marketing, Worldwide, in a statement. “Bringing these two companies together allows us to capture market share earlier in the design process. In addition to deepening our customer base, this acquisition will enhance our go-to-market strategy as we target the industrial Internet of Things with edge-to-enterprise products and solutions."
Are these goals compelling enough for Avnet to improve its offer for Premier Farnell and how much higher is the company willing to go? Is Dätwyler preparing a counter offer and, if yes, by how much? We will find out soon enough.