Inside Tech Data: What the CEO told workers about the $5.4B sale to a private equity group

Tech Data will be more agile and will have a longer-term focus as a privately held company, while retaining its values and culture, CEO Rich Hume told workers at a town hall meeting.

Hume addressed all of Tech Data’s 14,000 employees worldwide in the town hall, which was streamed globally on Wednesday, just hours after the Clearwater-based IT distribution company announced it agreed to be acquired by private equity firm Apollo Global Management in a deal valued at $5.4 billion.

Tech Data (Nasdaq: TECD) is the largest company headquartered in the Tampa-St. Pete area based on its $37.2 billion in sales in its most recent fiscal year. Sales grew dramatically after Tech Data bought the technology solutions business of Avnet (NYSE: AVT) in 2017.

“You may recall just a little over three years ago, we assembled like this and had an announcement that we had stated our intent to acquire the Avnet TS business. Prior to that statement, the Tech Data value of the company was about $2.7 billion. So in three short years, we’ve gone from $2.7 billion to $5.4 billion,” Hume said, according to a transcript filed with the U.S. Securities and Exchange Commission. “Do you know what that is a testament to? All of you. They care for all of you involved in Tech Data.”

Hume gave workers a timeline for the deal. He said Tech Data had spent the better part of four weeks in very, very deep and detailed discussions with Apollo. That’s about the time news first emerged that Apollo wanted to buy Tech Data. Tech Data’s chief legal counsel closed the deal at 4:36 a.m. Nov. 13 and a press release went out at 6 a.m. The deal is expected to close in the first half of 2020. Hume said he could not be more precise because the regulatory process typically takes three to five months.

He acknowledged that the top concern on workers’ minds was “what does this mean to me?” The headquarters will stay in Clearwater and management will remain in place, he said.

“Third and really, really important to myself and I’m sure to you as well is Apollo absolutely sees the value in their portfolio companies maintaining their cultures and their values. So, things which are really important to us like our community and community service are completely supported by our new potential owner. In addition to that, our values which are important to us: diversity and inclusion as well as collaboration as well as integrity. All of those things are maintained and are held intact,” Hume said.

Hume is one of hundreds of CEOs nationwide who have signed the CEO Action for Diversity & Inclusion pledge. The Check Your Blind Spots tour bus, an initiative to promote the pledge, stopped at Tech Data’s Clearwater headquarters last month.

Compensation and benefits are expected to stay largely the same, he added, and customer and vendor relationships won’t change. Apollo also will keep the Tech Data name, he said.

Still, there will be changes as a privately held company, Hume said during a question-and-answer session with workers.

“Number one is we will no longer be a publicly listed stock. Number two is the investment thesis or approach will be to really kind of focus on the long-term perhaps with a little less emphasis on the quarterly requirements. And number three is typically private companies have more agility than public companies because there is less requirement to explain to thousands of investors what we are doing with the company as opposed to a singular investor,” he said.

Many public company CEOs have said meeting quarterly reporting requirements for investors makes it tough to make decisions that are good for the company over time, but could bring short-term costs.

“In the future since we are a private company, we will be owned by one investor as opposed to thousands of investors. So therefore, we have the benefits of being a private company and that we won’t have to focus on making decisions based on 90-day periods, but rather have the opportunity to make sure we stay in line with what we want to accomplish strategically, and have the assets and capabilities of one very large investor to help us with our journey moving forward,” Hume said.

He did not rule out a return to the public markets at some point in the future.

“To be very transparent and clear, we are uncertain as to what Apollo’s specific plans are, but typically what happens is private equity firms work to build a bigger, better business overall. And then through time, they potentially take those companies back into the public market. So, the answer is that it’s a real possibility and that is the tradition of private equity,” Hume said.

He did not address one factor raised by Moody’s Investors Service in a report issued Thursday, when the credit agency put Tech Data’s under review for downgrade, “based on the expectation that the company will have higher financial leverage following the acquisition given the private equity ownership,” Moody’s wrote.

Apollo said it  has up to $5 billion in debt financing for the Tech Data deal.

Private equity firms often borrow money to pay for their acquisitions, then put that debt on the balance sheet of the company they acquire and pay back the debt from the acquired company’s earnings — a move that in some cases leads to job cuts.

Apollo has not publicly said if it will do that with Tech Data.