Tech Data 2013 Annual Report Download - page 7

Table of Contents
Europe, while leveraging our logistics infrastructure. In a related transaction, BEL acquired Triade’s mobility subsidiaries in Belgium and the
Netherlands, significantly extending BEL
’s mobility operations in Europe.
During fiscal 2012, we made two acquisitions in the European technology distribution marketplace. While the acquisitions did not have a
significant impact on our consolidated results of operations, the addition of these businesses expanded our product and customer portfolios and
continued to add desired skill sets, while leveraging our logistics infrastructure in Europe. Also in fiscal 2012, expanding upon the success of our
mobility distribution joint venture in Europe, we executed an agreement with Brightstar to establish a joint venture in the United States, hereinafter
referred to as TDMobility. TDMobility simplifies the selling, delivery and support of mobile services for our reseller customers serving the small
and medium business markets. During the fourth quarter of fiscal 2014, we acquired Brightstar's fifty percent ownership interest in TDMobility.
In fiscal 2012, we also exited our commercial in-country operations in Brazil and Colombia. Brazil’s complex legal, tax and regulatory
environments prevented us from generating an adequate level of profitability and a sufficient return on invested capital. In Colombia, a small
greenfield operation launched in fiscal 2010, we were unable to gain a level of traction equal to our investment in that market, and thus we ceased
our in-country operations at the end of fiscal 2012. We are continuing to serve both the Brazil and Colombia markets through our Miami-based
export business.
In fiscal 2013, we completed the acquisition of several distribution companies of Specialist Distribution Group, the distribution arm of Specialist
Computer Holdings PLC (“SCH”), a privately-held IT services company headquartered in the United Kingdom, for a final purchase price of $358
million. The Company used the proceeds from the $350 million of Senior Notes issued in September 2012 and available cash to fund the
acquisition. The acquired distribution companies are Specialist Distribution Group (SDG) Limited; ETC Metrologie SARL; Best’Ware France SA;
ETC Africa SAS and SDG BV (collectively “SDG”). SDG is a leading distributor of value and broadline IT products in the UK, France and the
Netherlands. Management believes the acquisition of SDG supports the Company
’
s diversification strategy by strengthening its European value and
broadline offerings in key markets and expanding the Company’s vendor and customer portfolios, while leveraging the Company’s existing pan-
European infrastructure. Simultaneously with the acquisition of SDG, the Company entered into a preferred supplier agreement whereby SCH,
through its IT reseller business, will have annual purchase commitments through Tech Data for a period of five years, which the Company
estimated would add incremental annual sales of approximately $500 million
. In November 2013, the preferred supplier agreement was amended to
extend the term of the agreement from five years to six years, expiring in January 2019. In connection with this amendment, while we expect the
total sales during the extended term to be higher than originally forecast, we expect the incremental sales to be approximately $450 million to $475
million annually over six years versus the original forecast of $500 million annually over five years.
Industry
The wholesale distribution model has proven to be well suited for both manufacturers and publishers of technology products (also referred to in this
document as “vendors”) and resellers of those products. The large number of resellers makes it cost efficient for vendors to rely on wholesale
distributors to serve this diverse and highly fragmented customer base.
Resellers in the traditional distribution model are able to build efficiencies and reduce their costs by relying on distributors, such as Tech Data, for a
number of services, including multi-vendor solutions, product configuration/integration, marketing support, financing, technical support, and
inventory management, which includes direct shipment to end-users and, in some cases, provides end-users with the distributors’ inventory
availability.
Due to the large number of vendors and products, resellers often cannot, or choose not to, establish direct purchasing relationships with vendors. As
a result, they frequently rely on wholesale distributors, such as Tech Data, who can leverage purchasing costs across multiple vendors to satisfy a
significant portion of the resellers' product procurement, logistics, financing, marketing and technical support needs.
The technology distribution industry continues to address a broad spectrum of reseller and vendor requirements. While some vendors have elected
to sell directly to resellers or end-users for particular customer and product segments, we believe that a vast majority of vendors continue to
embrace traditional distributors that have proven capabilities to manage multiple products and resellers, provide access to fragmented markets, and
deliver products in a cost-effective and efficient manner.
New products and market opportunities have helped to offset the impact on technology distributors of vendor direct sales. Further, vendors continue
to seek the logistics expertise of distributors to penetrate highly fragmented markets such as the small- and medium-sized business (“SMB”) sector,
which relies on VARs, our primary customer base, to gain access to and support for new technology. The economies of scale and global reach of
large industry-leading and well-capitalized distributors are expected to continue to be significant competitive advantages in this marketplace.
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