Gartner: TechPac "not best merger choice"

A Gartner channel analyst has questioned the value of Tech Pacific to Ingram Micro following the latter's $700 million buyout of its only rival in local broadbased IT distribution.

Martin Gilliland, a Singapore-based principal analyst at Gartner Group, said Ingram Micro was going to gain from the purchase. Yet a buyout of TechPac was not the best alternative.

"This doesn't look like the best merger choice or investment choice in the channel," he said.

Gilliland said Ingram was a massive distributor but trailed behind Tech Pacific in quite a few markets; essentially Ingram was buying a customer list from TechPac. TechPac also had a larger reseller base, he believed.

"However, they're likely to be selling to the same resellers as well. I can't see that Ingram would have many different resellers from TechPac," he said.

Observers might suspect that the name of the game was to create some sort of vendor leverage that enabled Ingram Micro to get better prices and provide better services. Yet Ingram was already big enough in most of the markets in which it competed to get the best prices possible, he said.

"You just can't go lower than Ingram prices in their strong markets," Gilliland said.

Ingram Micro was probably getting the same prices as TechPac in Australia despite the latter's greater strength here. However, Gartner didn't get access to distributor pricing, only bid pricing, he said.

"It's likely they are getting the same prices as each other, so making them bigger doesn't mean better prices because those prices are already as far down as they can go," Gilliland said.

"With services again, that's debatable because these guys are already too big, so why would you go any bigger?" he said.

Gilliland conceded that Ingram Micro might see benefits in some locations, such as Hong Kong. However, it was hard to see the benefits fully justifying the purchase price of $700 million, he said.

"It's a very expensive buy. So my first reaction is that [Ingram has] got something to prove," Gilliland said.

Gartner had been advocating channel consolidation for some time. But the best choice was likely to be two more complementary companies. For example, a niche distributor in NSW with no Western Australia customers would benefit from merging with a West Australian distributor to get a presence in that state, he pointed out.

"It doesn't mean the two biggest players have got to merge," Gilliland said. "This makes two big companies even bigger. But I'm not sure that one plus one equals two - in fact I'm sure it doesn't. It's more like one and a half, and that would be a good outcome."

Neither did the buyout create a "strong monopoly". Although the deal was large, in Australia there were still quite a few local distributors providing options for customers, and many had "pretty good" pricing, he said.

"I [also] don't think TechPac and Ingram Micro really have any more room to grow in terms of rebates," he added.

Further, TechPac would not benefit from the deal, although one of TechPac's previous major shareholders had already said the investment had been "very successful" - presumably a reference to the $700 million sale price. Yet that investor had only held the investment for a couple of years, Gilliland said.

"In my opinion, it's a bit of a shame. I liked the fact that Asia had two very large distributors capable of becoming regional players. And now they have one. JOS is probably closest to Ingram now and it's a distant second place, because it only covers four or five countries," he said.

Global customers buying cross-brand services of PCs for 15 Asia-Pacific nations previously had to go to two or three distributors and maybe as many as 15 resellers to do a deal. Now they could potentially just go to the one distributor and tell them to handle the deals, he pointed out.

"It's always nice to have the option of going to somebody else," Gilliland said.