Recently announced, Avnet, Inc. (AVT) declared its intent to buy Germany-based Magirus Group (Magirus). Whilst we await further details on the agreement, this acquisition is expected to be immediately accretive to Avnet’s earnings and bolster the company to achieve its target of 12.5% as return on capital (ROC) in two years time.
Magirus is a German company which provides software, system and other solutions to a total of eleven markets across Europe and the Middle East. It declared revenues of around $530 million in 2011 depicting an annual rise of nearly 20%.
Expected for closure in October this year, the transaction for buying Magirus will seamlessly strengthen Avnet’s Technology Solutions (TS) segment’s position in Europe and the Middle East. We can expect this acquisition to allow for vast market proliferation as well as expansion of Avnet’s product database. Also, substantial goodwill enhancement seems to be on the cards for Avnet with this venture at some major economies such as France and Germany.
We can be perspicacious of Avnet successfully achieving its goal of reaching revenues of $2.55 billion – $2.85 billion through such proactive advances in its TS segment for its upcoming fourth quarter of fiscal 2012. Furthermore, the current venture only reinforces the fact that Avnet keeps a keen eye out for making strategic acquisitions from time to time, the last one being the buying of Nexicore Services LLC which was completed on April 4, 2012.
However, the company should be aware of similar advances made by peers in the industry. On July 2, 2012, Arrow Electronics, Inc. (ARW) completed acquiring businesses of ALTIMATE Group. Avnet needs to take note of moves made by such strong rivals at all times.
Avnet currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. However, we presently maintain our ‘Neutral’ recommendation on the stock.
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