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Avnet (AVT) Eyes IoT Expansion With Acquisition of Softweb

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Avnet, Inc. (AVT - Free Report) is set to acquire software and Artificial Intelligence (AI) company, Softweb Solutions, for an undisclosed amount. The deal is expected to close by the end of this December-end.

Softweb offers software solutions for Internet of Things (IoT) applications and systems, designed to ramp up efficiency and speed time to market plus help transformation in businesses.

With this buyout, Avnet’s efforts in end-to-end IoT solutions are likely to accelerate. The integration provides Avent with rapid design, development and deployment capabilities, creating “new and recurring, margin-enhancing revenue opportunities” for the company.

On completion, the acquisition is expected to be immediately accretive to the company’s adjusted EPS. It is anticipated to contribute 5-10 cents to the metric by 2021.

Focus on IoT

Over the past year, Avnet has been trying to expand its presence in the IoT space. The company’s buyout of Dragon Innovation — a manufacturing consultancy and software vendor, which enjoys a strong foothold in the IoT space — is anticipated to help the company fortify its base.

On the IoT front, the company has struck several partnerships with the likes of AT&T and even inked acquisition deals with entities, namely Premier Farnell and Hackster.io, to enhance its competence level in the space.

Per the company, the aforementioned transactions have expanded its “reach to more than two million customers and an active community of more than 750,000 entrepreneurs, makers and engineers.”

In the first quarter of fiscal 2019, Avnet’s IoT solutions witnessed 15% customer addition and 30% revenue pipeline expansion.

Notably, the scope of IoT has made this space more lucrative for organizations. According to IDC research firm, IoT spending is likely to witness 13.6% CAGR during the 2017-2022 period and reach $1.2 trillion in 2022.

Acquisitions Aid Growth

Acquisitions are integral to the company’s core strategy of bolstering portfolio and expanding global operations while contributing significantly to the revenue stream.

Avnet's acquisition of Dragon Innovation is considered to add capabilities to the company’s portfolio. Prior to this in fiscal 2017, the company closed the acquisition of Premier Farnell that in turn, boosted Avnet’s top and bottom-line results. This addition to Avnet’s portfolio consistently strengthens its Electronics Marketing division’s offerings, aiding its top-line results in the process.

The Premier Farnell business generated $1,493.3 million in fiscal 2018, which was 55% higher year over year.

Avnet has also pursued a number of key acquisitions over the last few years, which are envisioned to comprehensively brace its performance and augment the product base and operational network. This makes us optimistic about the company’s growth prospects.

Zacks Rank and Stocks to Consider

Avnet currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Computer and Technology sector are CACI International (CACI - Free Report) , Intel (INTC - Free Report) and Symantec Corporation (SYMC - Free Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for CACI, Intel and Symantec is projected at 10%, 8.42% and 7.9%, respectively.

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