Why Avnet wants to buy Premier Farnell

Arrow and Avnet, the behemoths of the distribution channel have a problem. How do they get to design engineers at the genesis of their projects? How do they get ahead in demand creation?

They are taking very different routes right now.

See also: Avnet makes £691m bid for Raspberry Pi supplier Farnell

Arrow has chosen to purchase electronics publications and websites, most recently EETimes in the US, rationalising that this is where design engineers turn to garner information on new products, new technologies and where, if they wish, become part of a community sharing ideas.

Avnet’s bid to acquire Premier Farnell has the same rationale with of course the asset of being able to sell the product in the low volumes typical for project starts.

Engineers I speak to like the websites of the high service distributors – Premier Farnell, RS Components, Mouser Electronics and Digi-Key being the big players.

There they find pages packed to the gunwales with a rich depth of products, augmented by a cornucopia of technical back-up – white papers, videos, application notes and even a telephone help line for any urgent assistance.

Suppliers use them to launch new products into the distribution channel. These attributes make high service distributors attractive. In addition their business model is built around selling a few components at a higher price to enable the engineer to prepare a prototype.

What Avnet will be looking for, alongside the cosying-up to design engineers, is a potential seamless transition to the larger volume orders that follow when the project moves into production.

This, it seems to me, will require a sophisticated internal IT and communications intelligence sharing system to ensure this information is shared. Tough, but do-able.

The deal got a thumbs up from analysts at investment bankers Stifel . They believe the deal is justified , despite a price tag high at 9x forward EBITDA, due to the higher value nature of Premier Farnell’s offerings. They see the deal countering Arrow’s media buying activities as a path to demand creation. They also note that it suggests the change at the top of Avnet – Rick Hamada was replaced as CEO by William Amelio this month – means the company is taking a fresh look at its M&A activity.

Avnet’s previous acquisition was the Germany-based distributor MSC in 2013.