Speculation game

If I had a dollar for every time I’d heard the words “Ingram Micro is buying Tech Data Middle East” this week then I’d have enough money to purchase a modest IT distribution house of my own. But is it a piece of gossip that carries any weight, a case of mistaken identity, or another classic example of the ever-vivacious Middle East rumour mill going into uncontrollable overdrive again?

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By  Andrew Seymour Published  March 17, 2007

If I had a dollar for every time I’d heard the words “Ingram Micro is buying Tech Data Middle East” this week then I’d have enough money to purchase a modest IT distribution house of my own.

But is it a piece of gossip that carries any weight, a case of mistaken identity, or another classic example of the ever-vivacious Middle East rumour mill going into uncontrollable overdrive again?

Hearsay is part and parcel of life in the Middle East IT channel, particularly in dynamic markets such as Dubai where the presence of so many companies and individuals fosters a culture of intimacy.

The endless conveyor belt of innuendo and rumour requires a degree of caution to be taken when assessing information that finds its way onto the proverbial grapevine, but even by local market standards the speculation surrounding TD and IM has reached such an epic level in the past week that it has become impossible to disregard.

I even understand that it got to the point where Tech Data’s local management team had to inform employees that the market was rife with rumours about a takeover, but to continue focusing on their jobs.

Hanspeter Eiselt, managing director at Tech Data Middle East, laughed off the Ingram speculation. “I’m not sure where that [speculation] comes from, but certainly I’m not aware of anything,” he said. “I can assure you that nothing is true with the Ingram rumour.”

Tales of Ingram Micro entering this region have been floating around the market for the last couple of years to the extent that some parties have become quite obsessive about it.

But forget whether Tech Data would sell the operation, would Ingram actually want to buy it? For me, there are far too many reasons why it wouldn’t make sense — not least because Ingram would simply inherit the same set of challenges currently facing Tech Data.

Building a purposeful and profitable business outside of the UAE represents a monumental task, while the risk and exposure attached to doing business in this region still remains high, especially for US companies with strict corporate guidelines to adhere to.

It is also debatable whether the volumes on offer are attractive enough. The Middle East contributed little more than 3% of the US$11.5 billion sales that Tech Data generated in the EMEA region during the past 12 months.

My point is that if Ingram was to take on this business it would encounter an identical set of circumstances confronting Tech Data because it originates from exactly the same broadline mould. We are talking about companies living on gross margins of between 4.7% and 5.5%, and operating incomes that barely exceed 1.5% of their revenues.

Is Ingram’s business model that fundamentally different from Tech Data’s that it could come in with an alternative approach? To be honest, I struggle to see where it could add any extra value. And once you factor in the integration costs and return on capital employed that a merger of this nature would involve then the argument becomes even less convincing.

Ingram is also in the process of trying to start a joint venture business in Africa based out of Johannesburg. A move like that involves a level of risk that gives Ingram more than enough to think about for now. Taking the plunge in the Middle East would really test its resources.

Speaking to Channel Middle East from California, where he had been attending an executive meeting at the company’s HQ, Ingram Micro’s EMEA president Hans Koppen denied speculation of a move on Tech Data. “First of all, we never comment on rumours and secondly I don’t even know who is running that business today so I have no clue,” he commented.

“I can tell you that, in principal, we have an interest [in the Middle East market] but it is also about waiting for the right moment and the right opportunity,” he continued. “That hasn’t really presented itself yet. We have been looking at some things and if the right opportunity came up we definitely would be interested to look into it. But we will also be very careful.”

Tech Data has reiterated its commitment to the Middle East this year, but even if that was to change would it really be comfortable opening its books to its fiercest rival? I can recall few instances where the pair have sat down at the table together to talk transactions.

Ingram Micro to buy Tech Data Middle East outright? Highly improbable in my opinion.

But does it mean an end to this story? Not necessarily.

The market has also been buzzing with speculation that Aptec could have an eye on Tech Data to further its growth in the region, either by way of strategic partnership or acquisition.

At the time of writing, Aptec management could not be reached to comment on these rumours. Would Aptec really pursue such a move? After all, what would it get for its money? Tech Data’s VAD business may be an attraction, but let’s not forget that its logistics are outsourced to a third party provider and the customer base is still very UAE centric.

Interestingly, four years ago Aptec announced a collaboration with Ingram Micro following the launch of a new components division. Could we see Aptec getting hold of Tech Data Middle East and then, further down the line, forming an extended partnership with Ingram? With Ingram’s appetite for JVs — particularly in markets where it is keen to minimise risk — I wouldn’t rule it out.

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