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Avnet to Acquire Seamless Tech

Zacks Equity Research

Electronics and IT distributor Avnet Inc. (AVT) recently announced that it will acquire N.J.-based cloud and data center automation service provider, Seamless Technologies. Financial details of the deal were kept confidential. The acquisition reflects further strengthening of Avnet’s cloud services portfolio.

Seamless Technologies, a 21-year old company, specializes in delivering cloud services such as public/private cloud IT, automation, integration and virtualization. Seamless serves financial services, healthcare and insurance sectors. The company has strong ties with the tech giant Hewlett-Packard Co. (HPQ) and BMC Software Inc. (BMC).

Avnet believes that Seamless’ cloud services will smoothly integrate with its core service offerings. The company is optimistic that the combined offerings will help drive delivery and implementation of large-scale private/hybrid/public clouds.

Avnet sees that most of its channel partners are hardware-centric and keeps on finding out ways to add value to the hardware offered. The broadening of cloud services will help to attach more value to hardware and will allow its partners to be more profitable.

Interest in cloud computing is growing exponentially. Users are benefiting from lower cost of ownership, lower supervision cost, faster decision making and faster time-to-market. Eventually, cloud computing spending by IT firms is expected to increase manifold.

Avnet expects the acquisition to be wrapped up within a month and to be accretive to earnings with immediate effect. Post acquisition, Seamless will be combined into Avnet’s services division. We believe that Avnet’s growing exposure into the cloud is likely to fetch more revenues going forward. Earlier this year, Avnet acquired RTI Holdings Ltd. and TSSLink and solidified its service portfolio.

Distribution companies usually operate on razor-thin margins. Therefore, there are only a couple of ways to grow in this market. One of the most fruitful ways is through accretive acquisitions.

During 2012, the company acquired as many as 13 new units. These acquisitions are expected to augment the company’s product portfolio and enhance its performance quite comprehensively going forward.

Avnet sees significant competition for both its domestic and foreign operations. It has an archrival in Arrow Electronics Inc. (ARW)., although other big players such as Anixter International Inc. and Richardson Electronics Ltd. are also not to be discounted.

Currently, Avnet has a Zacks Rank #3 (Hold).

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