Avnet to buy IP&E distributor Abacus in $73M deal
Abacus has a portfolio of 180 supplier franchises covering IP&E devices, an area Avnet management has expressed interest in continuing the growth of its Electronics Marketing division in.
By Suzanne Deffree, Managing Editor, News -- EDN, October 10, 2008
Avnet Inc plans to acquire UK-based distributor Abacus Group PLC in an equity deal valued at $73 million (42.2 million pounds) as it continues to expand its global reach and IP&E (interconnect, passive and electromechanical) portfolio.
The deal is an all cash offer for approximately $0.94 (55 pence) per share and represents a transaction value of $181.8 million (105.1 million pounds) assuming a net debt position for Abacus of $108.8 million (62.9 million pounds) as of March 31.
Abacus first leaked the news of a potential buy in mid-September when its stock was trading at around $0.39 (23 pence) per share. The company's stock closed at $0.43 (25.5 pence) Thursday, with Avnet's offer representing a more than 115% premium.
Such a healthy premium is not unreasonable for the planned buy. Abacus has a portfolio of 180 supplier franchises covering IP&E devices, an area Avnet management has expressed interest in continuing the growth of its Electronics Marketing (EM) division in. Indeed, in January alone Avnet EM announced two IP&E-related deals.
“One of Electronics Marketing’s key growth strategies has been to expand our IP&E business in all regions," Harley Feldberg, president of Avnet EM, said in a statement today. "The acquisition of Abacus represents an acceleration of that strategy in EMEA as it will double our IP&E sales and bring value added capabilities to our regional portfolio.”
In addition to electronic components distribution, Abacus Embedded Systems Group provides specialty distribution of displays, embedded computer, and wireless communication products, while its Alpha 3 segment offers electromechanical value-added sub-assembly services.
Further, the 36-year-old company recorded sales of $497 million (287 million pounds) for its fiscal year ended September 2007 and is considered a leading value-added distributor in 10 countries across Europe where it has a large base of small to mid-size customers served by FAEs (field application engineers) and product specialists in 40 sales offices. In 2007, component distribution, of which approximately two thirds was IP&E, represented 73% of revenue while embedded products and sub-assembly accounted for 27% of revenue.
“This acquisition of Abacus represents an excellent complement to our Electronics Marketing group in EMEA. With a respected management team, talented associates and a substantial number of new customers, Abacus provides Avnet with exciting growth opportunities in the region," Roy Vallee, Avnet’s chairman and CEO, said in the statement.
Phoenix-based Avnet said the transaction is expected to be immediately accretive and benefit its next fiscal year earnings by approximately $0.10 to $0.15 per share, excluding integration charges. Avnet's fiscal 2008, reported on in August, recorded nearly $18 billion in revenue, a 10% gain year over year; $749 in operating income, a 36% gain year over year; and earnings per share of $3.18, a 48% gain year over year.
"Our financial strength affords us the opportunity to acquire excellent companies like Abacus despite current conditions in the credit markets. Using conservative business case assumptions, we believe that we will achieve our stated return on capital targets following the completion of the integration,” Vallee continued.
The transaction, which is subject to the completion of a tender offer and EU merger control clearance, is expected to close in early 2009.
In compliance with the UK Takeover Code, Avnet has 28 days to mail to Abacus shareholders an offer document which sets out in full the terms and conditions of the offer. The deal is expected to go through, as Abacus' board is recommending the offer and Avnet has already received irrevocable commitments to accept the offer from Abacus’ directors and certain other shareholders representing more than 30% of the issued shares.
