Ingram Micro Chief Executive Alain Monié predicts his Irvine-based electronics distribution giant will benefit from having U.S. ownership after four years with HNA Technology Co. Ltd. of China.
Los Angeles-based private equity firm Platinum Equity said last week it had agreed to acquire Orange County’s largest firm by revenue in a deal valued at $7.2 billion.
The deal is reported to be the biggest disposal by a Chinese company to an overseas buyer in 2020.
“Ingram Micro has always operated as a stand-alone business, separate from our parent company,” Monié told the Business Journal. “HNA was a good partner, but I think we will see benefits from having a prominent, U.S.-based company as our parent.”
Platinum said Monié will continue as CEO after the sale is completed, and that the Ingram Micro headquarters will stay in Irvine.
Cloud Boost
Ingram Micro, the world’s largest wholesale technology distributor, generated $47.2 billion in revenue for fiscal year 2019. It employs more than 35,000 people with operations in 60 countries.
The company reported third-quarter net sales of $12.1 billion, up 2.1% from the same period a year earlier.
While Ingram Micro is considered a tech firm, it’s constantly trying to boost profit in the distribution sector that has notoriously razor-thin margins. Third-quarter adjusted operating income was $265 million, or 2.19% of sales, which the company said was a 62 basis point increase over the same period a year ago.
Ingram offers technology and supply chain services that are used by many of the world’s largest technology companies such as Apple Inc., Cisco Systems Inc., Hewlett-Packard Co., IBM Corp., Microsoft Corp. and Samsung Electronics Co. Ltd.
Some of the company’s newest products and services, in particular cloud-based offerings that offer higher profit margins, are seeing more interest during the pandemic.
COVID-19 has accelerated demand for cloud computing and related infrastructure as businesses increasingly shift to remote and virtual operations.
“This year, we’ve seen particularly robust growth in markets supporting work and learn from home solutions,” Monié said. “Our e-commerce logistics and fulfillment business has also been growing strongly given the sustained growth of on-line shopping and our cloud business continues to grow exponentially.”
“As the largest technology distributor in the world, Ingram Micro is a powerful platform with multiple ways to grow,” Platinum Chairman and Chief Executive Tom Gores said in a statement provided to the Business Journal.
Gores, who is estimated by the Los Angeles Business Journal to have a personal fortune of $5.6 billion, added that Ingram would be a cornerstone of Platinum’s portfolio and would position the firm for growth in the lucrative cloud computing sector.
“The cloud market is on the threshold of a major expansion,” Gores said, “and Ingram will be a vital partner in helping companies respond to high demand for public cloud infrastructure and new technologies like managed services and hybrid cloud.”
Monié said Platinum “wants us to continue to build on our strong competitive advantage in the cloud and hasten our digital transformation to make doing business with Ingram Micro even easier.”
20% Premium
The sale is expected to be completed by the first half of 2021, subject to various approvals.
“We are confident joining Platinum Equity will further strengthen our capabilities to support our business objectives, as they are ready to commit substantial resources to provide us with added flexibility to scale our services and solutions even faster, both organically and through M&A,” Monié said.
HNA Group paid $6 billion for Ingram in 2016; the Irvine company was reported to be on the sales block since 2018, after the Chinese firm began running into severe financial difficulties. An initial $7.5 billion asking price was cited by national press at that time.
After HNA was reported to have defaulted on loans tied to the Ingram purchase earlier this year, analysts speculated the Chinese company could ultimately sell Ingram at a loss.
That didn’t occur: the final sales price to Platinum Equity marks a 20% premium to HNA’s 2016 purchase price.
Monié said the premium is well-justified.
“If you take a look at our financial performance over the past four years, you’ll see that revenues have fluctuated by year, but in 2019 we did $5 billion more than 2016,” he told the Business Journal.
“More importantly, profitability has been up significantly as we’ve been very strategic in our growth objectives, focusing on high value markets,” such as advanced solutions, IoT, cybersecurity, artificial intelligence, cloud, and expanded forward and reverse logistics services, he said.
Gores said that “coming out of the pandemic, next year will be crucial for companies adapting to these new technologies.”
Non-GAAP net income “has increased significantly since HNA purchased us and businesses, particularly those with an overall margin profile such as ours, are generally valued more on profits vs. revenues,” Monié added.
Next Steps
“One of the most exciting aspects of partnering with Platinum Equity is they want us to accelerate our growth and will give us access to their substantial resources to do so,” according to Monié.
Ingram Micro boasts of more than 250,000 customers, and partners with over 2,000 vendors.
Platinum Equity is a global investment firm with approximately $23 billion of assets under management and a portfolio of approximately 40 operating companies that serve customers around the world.
Gores, the Platinum founder, chairman and CEO, is also the owner of the Detroit Pistons.
China Issues
Some people see the advantage of having Ingram Micro back in U.S. hands, given the trade tensions and security risks with China.
Kevin McDonald, the chief operating officer and chief information security officer at Irvine-based computer security company Alvaka Networks, said the 2016 purchase by HNA should have made the U.S. government nervous for national security reasons.
“The original HNA transaction should have been rejected by the U.S. government in the first place,” McDonald said last week after the sale was announced. “The potential for supply chain disruption with a strategic adversary owning a good part of global tech distribution was Russian Roulette with Chinese bullets, in my opinion.”
He said he “strenuously objected before HNA’s acquisition was originally approved,” while he believes the sale “has much more to do with HNA’s financial issues and concerns about faltering U.S. relations in general.”
“No matter the reason, the repatriating of Ingram Micro to an American-based investment group is a huge positive for global technology reliability and American national security in my opinion,” according to the Alvaka exec. n
James B. Cutchin, a staff reporter for sister publication Los Angeles Business Journal, contributed to this story.
