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Electronics and IT distributor Avnet Inc. (AVT - Analyst Report) recently announced that it will acquire Hong Kong-based value-added distributor, RTI Holdings Ltd. along with its three associate companies (RTI Technology China Ltd, Eastele Technology China Ltd, and DSP Solutions Ltd). Financial details of the deal were kept confidential.

RTI Holdings, a 24-year old company, specializes in delivering wireless, optical, telecom, data communications, and industrial components across Hong Kong and the People’s Republic of China. RTI Holdings serves 700 customers across telecom and datacom, industrial and digital home applications end markets. The company also provides specialized engineering services, technical support and sales promotion activities.

Post closure of the acquisition, Avnet will integrate the new division into its Electronics Marketing segment as RTI’s offerings will compliment the segment’s flagships. With RTI Holdings, Avnet will be able to boost its product portfolio and extend its geographical reach in Asia (mainly in China).

The acquisition is expected to close by mid-April. Avnet expects the acquisition to be accretive to its earnings shortly.

In the second quarter of 2013, revenues from Avnet’s Electronics Marketing segment grew 2.2% from the year-ago quarter to $3.67 billion led by double-digit growth in the volume fulfillment business in Asia, which offset weak performances in America and Europe. For third quarter, Avnet expects segment revenues within the range of $3.625–$3.925 billion, implying a decent sequential comparison.

We believe that with RTI Holdings, Avnet will be able to achieve or even surpass its expectations.

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.

In January, Avnet acquired California-based IT professional services company, TSSLink Inc. for an undisclosed amount and added it to its Technology Solutions segment.

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 #1 (Strong Buy).

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