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Tech Data: A Relatively Safe Deal

The Profit Hunter profile picture
The Profit Hunter


  • Apollo should finalise the acquisition of Tech Data within around one month.
  • The market is pricing in an 86% probability of the deal closing.
  • 3.6% potential upside for shareholders.

M&A Spreads Have Narrowed but Remain Attractive

If you’ve been following the flurry of merger arbitrage notes I have put out since March 22, then you may be curious to see how our scorecard is shaping up.

Whilst there has been a narrowing of spreads since the period of dislocation in mid-March, spreads still remain moderately attractive, particularly for complex or risky deals.

Deal Overview

Prior to the onset of the coronavirus pandemic, Tech Data Corp. (NASDAQ:TECD) traded at a narrow 1% spread to Apollo Investment’s (AINV) offer price of $145. Apollo originally bid $4.77 billion ($130 per share) but was out-bid by Berkshire Hathaway (BRK.A, BRK.B), before sweetening the offer to $5.14 billion ($145 per share) on November 13, 2019.

As the virus began to spread, financial markets plunged and the gross spread on TECD blew out during mid- to a peak on March 18. The gross spread has since narrowed to 3.6%, which some observers may regard as unexciting. However, it is important to consider that with the passage of time, there is a "pull to par" effect with announced merger deals. There is likely only one month left until closure, and the financing has been firmly committed by a consortium of financial institutions. Moreover, Tech Data is performing well as a business.

What Does Tech Data Do?

Tech Data Corporation is an IT distribution and solutions business. The company distributes products from technology vendors and sells through a range of channels. Its customers comprise resellers, direct marketers, retailers and managed service providers. The bulk of its revenue is derived from Europe (52%), followed by the United States (40%). Margins are slim in the IT distribution world, but the business is highly cash-generative, producing $545 million in free cash flow in the financial year ending January 2020.


This article was written by

The Profit Hunter profile picture
I am a private investor with 15 years working in global blue chip asset management houses. My investment style involves identifying a handful of high quality businesses with strong competitive moats and durable economic franchises. Once I become comfortable with the investment case, I tend to hold such businesses for years, if not decades. My goal is to share business insights and perspectives.

Analyst’s Disclosure: I am/we are long TECD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (5)

Don MacShane profile picture
I think this deal will close very soon
Special Situations and Arbs profile picture
any current thoughts on TECD?
Added @129 levels
What are the pending approvals form other counties that are pending; it could take a while to get those
Australia FIRB approval would likely be delayed as per announcement end of March. Statutory deadline for application decisions extended from 30 days to up to 6 months (but with priority given to urgent applications aimed at saving Australian businesses and jobs). Impact on applications currently being processed is unclear.
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