Earlier this week, Avnet, Inc. (AVT) completed yet another acquisition being that of Altron GmbH & Co. KG (Altron). This was done with the clear intent of proliferating Avnet’s Abacus unit across Europe’s IP&E market. Altron’s acquisition shall not only be immediately accretive to Avnet’s earnings but will also help it achieve its return on capital (ROC) target of 12.5%.
Avnet appears to be on an acquisition spree as the Altron acquisition marks the second one this week post the acquisition of Magirus Group (Magirus). Both these German-based companies acquired by Avnet are going to be major growth drivers for the company’s yields across its European businesses.
Altron is a German-based company which is an interconnect, passive and electrochemical components distributor with above 40 suppliers. Avnet shall be able to make a stronger foothold in the German economy, thereby expanding its market share substantially in the EMEA region through this venture.
It is to be noted that the EMEA region has been a major point of concern for the company of late. This disconcerting feature became only too palpable in the third quarter results of fiscal 2012 which were declared on April 26, 2012. Sales across this area during the first nine months of fiscal 2012 dropped around 8.1% to reach $5.69 billion compared to the same period last year.
This deteriorating demand in the European economy was the main reason for the 4.3% annual downfall reported in the company’s Electronics Marketing (EM) segment in its third fiscal quarter. We can expect these downsides to hopefully mitigate through such proactive advances made to ameliorate gains incipiently.
Avnet should, nevertheless, be wary of its competitors in the industry. Big players to keep an eye out for in this regard include Anixter International Inc. (AXE), WESCO International Inc. (WCC) and Richardson Electronics Ltd. (RELL).
The company currently retains a Zacks #4 Rank, which translates into a short-term ‘Sell’ rating. We also maintain a long-term ‘Neutral’ recommendation on the stock.
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