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Electronics and IT distributor Avnet Inc. (AVT - Analyst Report) recently announced that it will acquire German distributor of electronic components (embedded computing technology and display solutions), MSC Investoren GmbH (or MSC Group). Financial details of the deal were kept confidential. The acquisition reflects further strengthening of Avnet’s core business of distributing electronic components.

Per the deal, Avnet will initially hold the majority of MSC Group’s shares, while the remaining would be acquired some time later (time not specified). On completion of the merger transaction, Avnet will be able to integrate MSC Group’s distribution and supply chain services with its capabilities.

Apart from owning an enhanced product portfolio, Avnet will be better positioned to meet growing demand for electronic solutions in the European industrial electronics market. The addition will also help Avnet to boost its margins. The transaction, which is awaiting certain regulatory approvals, is expected to be accretive to Avnet’s earnings per share, helping it to achieve long-term return on capital (ROC) of 12.5%. The earnings accretion expectation seems to be achievable, given MSC Group’s solid revenue generation of more than $450.0 million in fiscal 2012.

Earlier, in June, Avnet acquired N.J.-based cloud and data center automation service provider, Seamless Technologies for an undisclosed sum. Seamless’ capabilities will smoothly integrate with Avnet’s solutions, allowing it to deliver and implement large-scale private/hybrid/public clouds. Additionally, the broadening of cloud services will help to attach more value to hardware and will allow its partners to be more profitable.

Earlier this year, Avnet acquired RTI Holdings Ltd. and TSSLink and solidified its service portfolio.

Distribution companies usually operate on razor-thin margins. Therefore, there are only a couple of ways to grow in this market. One of the most fruitful ways is through accretive acquisitions.

During 2012, the company acquired as many as 13 new units. These acquisitions are expected to augment the company’s product portfolio and enhance its performance quite comprehensively going forward.

Avnet sees significant competition for both its domestic and foreign operations. It has an archrival in Arrow Electronics Inc. (ARW - Analyst Report), although other big players such as Anixter International Inc. (AXE - Snapshot Report) and Richardson Electronics Ltd. (RELL) are also not to be discounted.

Currently, Avnet has a Zacks Rank #3 (Hold).

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