Avnet Buys Memec for $676M

By Rob Spiegel -- Electronic News, 4/26/2005

Avnet Inc. will acquire Memec Group Holdings Ltd. in a stock and cash transaction valued at approximately $676 million, including the assumption of approximately $194 million of Memec's net debt, the companies announced after today's bell.

The purchase of Memec will give Avnet deeper penetration into the design end of component distribution and will also give Avnet Memec’s foothold in Japan’s component market.

Under the terms of the agreement, Memec investors will receive a total of approximately 24.011 million shares of Avnet common stock plus approximately $64 million of cash, the companies said. The transaction is expected to generate annual synergies of approximately $130 million from cost savings -- including $10 million from reduced interest expense -- and is expected to be immediately accretive to earnings. The closing of the transaction is anticipated in 60 to 90 days.

Memec, a distributor of semiconductors, generated revenue of approximately $2.3 billion in calendar year 2004. In the same period, the private company generated operating income of $63 million.

Distribution analyst, Rob Damron views the purchase as a significant score for Avnet. “This is a huge transaction and a big win for Avnet in electronic component distribution,” said Damron, managing director of 21st Century Equity Research in Milwaukee. “Memec’s focus on design wins and design win capabilities separated the company from other players in the industry. Memec should fit well into Avnet’s organization since Avnet wants to continue to expand its presence in design.”

Memec has spent the better part of the last 18 months preparing for an initial public offering (IPO). Market factors, however, have not been positive for IPOs in the electronics industry. “Memec was considering going into the public equity market, but the market hasn’t cooperated in the last 12 months,” said Damron. “Apparently they decided that going with Avnet would provide greater shareholder value.”

Memec generated revenue of approximately $2.3 billion and operating income of $63 million in calendar year 2004, making the distributor of semiconductors a good deal for Avnet, said Damron. “They’re only paying 29 percent of sales for 10 and a half times operating income, which is a good price for the Memec franchise.”

Memec will be integrated into Avnet and its electronics marketing group. After the acquisition, Avnet's electronics marketing group will have operations in 69 countries and anticipated annual sales of more than $8.5 billion, the company said.

"We are excited about the opportunity to significantly expand our presence in each of our existing three regions, as well as gain entry into the important Japan market," Roy Vallee, Avnet's chairman and CEO, said in a statement. "Memec is a well-established semiconductor distributor with valuable franchises, strong technical capabilities and many talented people. In addition to delivering more value to both companies' customers and suppliers, the combination creates significant value for Avnet shareholders. We believe that EPS accretion will begin immediately and we expect to realize double-digit returns on this investment once the integration is complete."

Memec, with operations in 33 countries and 130 cities, grew total revenue 27 percent in 2004, with the Americas accounting for 44 percent, followed by the Asia region, including Japan, at 31 percent, and Europe, Middle East and Africa at 25 percent.