Ingram Wraps Up Brightpoint Buyout

Ace information technology (IT) distributor Ingram Micro Inc. (IM - Analyst Report) finally had the opportunity to close the acquisition of Brightpoint Inc. (CELL), a leading distributor of wireless devices, for a cash consideration of $840.0 million. The deal, which was announced in July, received an approval from the European Union last week.

Brightpoint specializes in providing wireless communications technology globally. The company also provides customized logistics services to mobile network operators, mobile virtual network operators, resellers, retailers and wireless equipment manufacturers. Brightpoint has tie-ups with heavyweights such as Research In Motion Ltd. (RIMM), HTC Corp and Nokia Corp. (NOK - Analyst Report). It has also been winning deals from the likes of MetroPCS Communications Inc. (PCS) and Sprint Nextel Corp. (S - Analyst Report).

The company has sales operations in 75 countries, with more than 25,000 customers. Ingram reported $5.2 billion in revenue (up 46.0% year over year) and earnings per share of 71 cents (up 65.0%) in 2011.

With Brightpoint, Ingram will now be able to broaden its distribution network and augment its high-margin Logistics business. The expansion of Ingram’s customer base in the mobile market and its geographical reach will be a bonus.

Ingram has been focusing on its Logistics business. To make the business more profitable, Ingram has resorted to the elimination of unprofitable lines of business, while concentrating on select contracts and the acquisition of new clients. The addition of Brightpoint will help boost Ingram’s Logistics revenue.

Brightpoint’s offerings will be complementary to Ingram’s portfolio, but customer overlap is negligible, which is a very big positive. The acquisition is expected to be accretive to Ingram’s earnings per share by 18 cents in 2013 and 35 cents in 2014. The similar lines of business will attract less integration time and costs. Apart from this, Ingram expects a cost synergy of around $55.0 million by the end of 2014.

Despite things being in Ingram’s favor, Brightpoint’s major customer loss and high debt burden concern us.

Though we have a long-term Neutral recommendation on the stock, significant European exposure and debt burden lead to a Zacks #4 Rank, implying a short-term Sell rating.