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Apollo Outbid Warren Buffett for Tech Data

Tech Data Corp. (NASDAQ:TECD) is being acquired by Apollo Global Management Inc. (APO). Warren Buffett (Trades, Portfolio)'s Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) apparently bid $140 per share for the company, but doesn't plan to bid again.


It turns out that Bank of America (BAC) contacted one of Buffett's lieutenants, who brought it to his attention. Buffett evaluated the idea in the space of one day and figured he would bid up to $140. For some of the background story on Buffett's involvement, see the CNBC clip below.

This is very unusual behavior for Buffett. He doesn't ever get involved with these bidding wars. Tech Data has a market cap of about $5 billion. Buffett has a hoard of over $100 billion in cash. This was probably a company one of his aides knew very well and championed.

Meanwhile, the market is now putting almost no spread on this deal between Apollo and TechData. I track the most interesting deals in an M&A dashboard (screenshot below):

It is clear the market believes this could be a bidding war still. I strongly disagree. It is against Buffett's long-time belief that you should never engage in a bidding war. I can't see him throwing that practice out of the window, and certainly not for a $5 billion snack.

There is some potential for another suitor showing up. I haven't heard anything of the kind. I don't expect another party has been involved so far.

This is likely a pretty good buy for Apollo. TechData trades at 7.11 times free cash flow. It also has an enterprise value to Ebitda of 6.87 and a rock-solid balance sheet. Theoretically, the fundamentals support another bid.

With Buffett's vote of confidence on the stock at $140 per share, this may get other parties interested. Especially private equity as they can lever it up and have the expertise to make the most out of bringing companies private. However, I don't think the odds are great. I don't have a position. If the spread widens back out to 2% to 3%, I can see myself getting interested. I wouldn't short it either. Likely the downside isn't very deep. Berkshire would probably buy it at $140 if they were given a second chance.

Disclosure: No positions.

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This article first appeared on GuruFocus.