(ARW) Arrow Electronics Announces Decision to Aquire Redemtech

World’s largest distributor of electronic components and enterprise computing products Arrow Electronics, Inc. (ARW) recently declared its decision to acquire Redemtech, Inc. (Redemtech). The acquisition, subject to regulatory ratification, is likely to close within 60 days of the announcement date.

Redemtech, an operating unit of Micro Electronics, Inc. based in Columbus, Ohio, is mainly engaged in the distribution of a range of Electronics Asset Disposition (EAD) services, which includes elimination and protection of data, restoration as well as remarketing of electronic components. Redemtech with 250 employees currently operates across the United States and provides services to several end markets such as consumer market, government sector and financial organizations.

The acquisition appears to be a quite profitable one for Arrow as Redemtech has been yielding favorable results of late and is expected to generate revenues of nearly $60 million in 2012. In addition, management stated that this acquisition is likely to solidify the company’s foothold in the EAD market and it would diversify and broaden its product portfolio, especially in the growing emerging markets.

Arrow has retained a keen eye out for making profitable acquisitions for its market expansion, improving its product offerings and maintaining its leading position in the global market. However, the company recently reported total sales of $5.15 billion in the second quarter of 2012, down 7% year over year and 5.3% sequentially. The current macro-economic challenges prevailing in the European region and slow growth in China adversely affected the company’s business in the quarter.

Arrow currently faces ominous competition from major players of the industry, which includes Richardson Electronics Ltd. (RELL) and Avnet Inc. (AVT) in the industry. In order to retain its position in the global market, it is imperative that the company continues to make such momentous undertakings, keeping in mind the betterment of the organization in both the long and short run.

The current Zacks Consensus Estimate for the third quarter of 2012 is $1.04, reflecting a year-over-year growth of (13.33%). Estimates for 2012 and 2013 are $4.54 and $5.06, representing annual growth of (12.50%) and 11.33%, respectively.

We currently maintain an ‘Underperform’ recommendation on Arrow. The stock carries a Zacks #3 Rank, translating into a short-term (1-3 months) ‘Hold’ rating.

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