Out of the blue sea, Tianjin Tianhai from China announced it will buy Ingram-Micro, the world's largest technology distributor for $6 billion.
$6 billion for a $46 billion company tells you a lot about the business of high tech distribution. But this story is not about the HOW MUCH but more about the WHO and the WHY.
Tianjin Tianhai began as a humble marine shipping company and turned itself into a modern logistic industry investor and operator, focusing on investment in logistics, supply chain and management-- and financing service for the logistic industry.
It will put Ingram-Micro into its HNA Group, which just happens to be the largest shareholder of Tianjin Tianhai.
Hang on, yes it is confusing. Just imagine a Deutsche Post buying a German IT distributor and putting it under its subsidiary DHL to be managed. Now with a little more fiction, imagine if DHL had owned the majority of Deutsche Post stock. That would make DHL the power behind the Deutsche Post throne, right?
Best known for its aviation, HNA Group started only 20 years ago as an airline flying from Hainan, the only tropical island in China. Now it is a conglomerate composed of divisions: Aviation, Holdings (real estate and airport management), Capital, Tourism, Logistics (shipping and marine construction, marine transport, cold chain system and a very interesting 3rd party payment with cloud, Big Data and IoT).
There is one more division, called "Other," and we presume this is where Ingram Micro will go.
That group has a cultural company (a Chinese equivalent to Universal Studios with film and theme parks on its mind), a finance company, another aviation & tourism company, a college (yes, a college) and an aviation import & export company that is probably closest to Ingram Micro in business model.
Chinese business seems so darn confusing to us in the West, and it's easy to mistake our confusion for a lack of clarity on their part. We can look at their ads with airline pilots riding on a carousel with far-too-young girls and scratch our heads. We can look at their web sites and easily laugh at how they feel compelled to identify each HNA Board Member as "Male" or "Female" (despite having photos on each Member next to their biographies and despite all being Male.")
Laugh at cultural differences, but when you read the bios, you'll see these HNA men are some clever executives with educational background from Harvard, Maastricht and other notable institutions.They grew HNA from nothing to $90 billion in just two decades-- and now they can buy up the tech industry's crowned king of distribution without blinking.
Now the biggest question: why buy a tech distributor, at all?
Well, let's listen to Adam Tan, Vice Chairman of the Board of Directors and CEO of HNA Group. He says, "Ingram Micro has clearly established itself as a leading distributor and global provider of IT products and services. The Company has a proven and talented team and we believe Ingram Micro is unrivaled in its ability to offer industry-leading, differentiated and easy-to-manage solutions to vendor and customer partners worldwide. We look forward to supporting Ingram Micro's management team and strategies, including continued expansion into new geographies, while also offering their vendor and customer partners access to new and complementary offerings. We share Ingram Micro's commitment to integrity, innovation and performance and we are confident this transaction will enable Ingram Micro to continue to distinguish itself in the marketplace and meet the needs of its vendor and customer partners better than ever before."
Tan also says, "After the transaction, Ingram Micro would become the largest member enterprise of HNA Group in terms of revenue, and facilitate the internationalization process of the group. With the help of Ingram Micro, HNA Group would have access to business opportunities in emerging markets, which have higher growth rates and better profitability. Furthermore, the addition of Ingram Micro would help the logistics sector of HNA Group transform from a logistics operator to a supply chain operator, and provide one-stop services while improving efficiencies."
And then there are comments from Alain Monié, Ingram Micro CEO. He says, "Our agreement to join HNA Group delivers near-term and compelling cash value to our stockholders and we expect it to provide exciting new opportunities for our vendors, customers and associates. Innovation, new services introduction, brand management and ensuring the stability and continuity of the businesses joining their enterprise are fundamental to HNA Group's overall strategy. As a part of HNA Group, we will have the ability to accelerate strategic investment, as we continue to capitalize on the constant evolution of technology and emerging trends by adding expertise, capabilities and geographic reach. Additionally, Ingram Micro will now be part of a larger organization that has complementary logistics capabilities and a strong presence in China that can further support the growth and profitability objectives of our vendor and customer partners."
That's a lot of corporate-speak, so let's see if we can summarize:
HNA is a conglomerate not just a company, so by definition it has diverse holdings. Yet, it wants to stick close to what it knows as it grows. And it knows shipping (marine and aviation), the logistics surrounding transport, and the related management and financing.
It sounds like the Chinese think those clever Westerners at Ingram Micro can bring them the experience that helps move their expertise up the value chain. It's not the technology expertise they seek, but how to squeeze the bejesus out of the cost of operations, how to sweet-talk vendors out of marketing cash, and how to add value to logistics services.
Supposing that doesn't pan out, the Chinese are not expecting to be left holding an empty hand. They recognize Ingram Micro is profitable and a leader in technology distribution. HNA Group is thinking to itself, "If they can do $46 billion in USA, Europe and a little Asia...just think what Ingram Micro could do if we teach them how to do China the Chinese way and the rest of Asia. Keeerrr-boom! We'll have a $100 billion Ingram Micro in less than 10 years!"
I may be doing more mind-reading than paraphrasing here-- but I think you get the point.
They may have already figured out they can also weave their shipping services into Ingram operations-- I mean, you have to ship from China to the world so why not on preferred HNA carriers? This type of conglomerate back-scratching rarely works out, but you can see them giving it a go. You'll hear Ingram executives scream if it eats into their silicon chip-thin margins.
A powerful Ingram Micro embedded as a major distributor in China and Asia could become extremely enrichened by helping China's manufacturers penetrate Western markets. So many Chinese manufacturers and so little outbound experience. (Competing against companies like Global Sources to become the China exporter's best friend...)
The deal needs regulatory approvals in various jurisdictions, as well as the approval of Ingram Micro's and Tianjin Tianhai's stockholders-- and the other usual closing conditions. While some pundits fear the "Chinese takeover backlash" in USA could interrupt the deal, the plain fact is the US government has little or no understanding of how distribution works (all its programs are geared to support manufacturers and not the sellers). So, out of ignorance and lack of understanding, we expect a laissez-faire atttude.
What's the worst that could happen? In one sense, the worst that can happen is new ownership proves incompatible with the American distributor and the commercial damage to the distributor could affect the sales of all the manufacturers accustomed to Ingram Micro doing the majority of its sales. Could that cause a tech global recession until the industry could adjust?
In another cynical scenario, suppose China realizes the big secret of Ingram Micro is that it holds the industry's core Big Data: what's selling, where it is selling, and at what price it is selling. Maybe China Inc., the hand-in-hand working of government and industry, could usurp that data to give Chinese makers an advantage against their Western counterparts... Yet, in a capitalist system, once that issue would be uncovered, Western vendors could vote with their feet and flee to other alternatives.
Any way you look at it, it looks like high-flying HNA Group just changed the global distribution business.
For every action, there is a reaction. One can only imagine what strategy competitors like Tech Data or Avnet might turn to, in order to compensate for the new investment (and the new Asian entrée) Ingram Micro now inherits.
Ingram Micro is expected to remain headquartered in Irvine, California, and Ingram Micro's executive management team will remain in place, with Alain Monié continuing to lead as CEO. All Ingram Micro lines of business and all regional and country operations are expected to continue unaffected.
Which leads you to believe the first and main courses of action will all be in Asia where HNA believes the real benefit of the acquisition lies.
Developed from a local aviation transportation operator to a conglomerate encompassing core divisions of aviation, holdings, capital, tourism and logistics, HNA Group's business outreach has expanded from Hainan Island to the globe, which has assets valued at over $90 billion, and has 11 listed companies. In 2015, HNA Group had revenues of $29 billion and nearly 180,000 employees worldwide.
About Tianjin Tianhai
Tianjin Tianhai was established in December 1st, 1992, located in Tianjin Airport Economic Zone, with registered capital above RMB2.89 billion. Tianjin Tianhai is a Shanghai Stock Exchange traded company. Tianjin Tianhai has now developed from a traditional marine shipping company into a modern logistic industry investor and operator, focusing on investment in logistic market segments, supply chain investment and management based on upstream and downstream of the logistic industry, as well as financing service for the logistic industry. Tianjin Tianhai is committed to becoming a core platform for logistic assets investment/management and financing service with global coverage under HNA Group.
Footnote: "Tianjin." Yes, you have heard that name before. It's the sea port in China where an explosion of chemicals demolished an area, rocking it with two explosions with respective impact of 3 tons of TNT and 21 tons of TNT. Fireballs shot hundreds of feet in the sky and the world watched it all on YouTube. Tianjin Tianhai, although a shipper with marine background, is actually located at the airport and not the port. And while shipping companies (and Port management) were blamed for this accident which killed 173 and injured 797, none of Tianjin Tianhai's companies were involved.