Two companies nobody really cared about, two companies that weren't a focus -- ADT (ADT) and Ingram Micro (IM) -- are suddenly being snapped up this week by anxious buyers at huge premiums, and we have to ask if this isn't some sort of nascent trend of down-and-outers with valuable franchises getting bought by others who can do more with them.
The $7 billion buy of ADT by Apollo was a reminder that a company with a great brand but sagging numbers can be more valuable if gussied up privately and then brought public again, which I am sure is Apollo's plan for the home security company. This one's been a big disappointment for ages after it was spun off from Tyco (TYC), in part because so many companies want into this security business, and in part because outfits like Comcast (CMCSA) and AT&T (T) are offering options that are quite attractive. ADT never became the consolidator of the moms and pops that people had hoped. I bet they can do it under Apollo.
The Ingram deal, where Tianjin Tianhai agreed to purchase the IT distributor for $6 billion, is incredibly important to the M&A scene. Ingram is part of a very fractured market that includes Tech Data (TECD) and Avnet (AVT), and while the market had been consolidating, mostly because of purchases by Avnet, the margins had been pretty brutal of late. When I spoke to Avnet a few weeks ago, the price competition in Asia and the United States had become pretty difficult.
Ingram will become part of China's HNA Group, which has a far-ranging group of businesses including those in logistics, aerospace and tourism. Most important, Chinese companies have not been involved in much M&A because of issues either involving precious national resources -- the nixed Unocal deal of long past -- or because of fears of military assets falling into their hands. But this deal should not be blocked by any authority, and it allows HNA to be a consolidator in itself. That's fabulous for the valuations of both Avnet and Tech Data and it also puts some fear into the hearts of the short sellers, who have had the run of the place.
We can't call this a wave of M&A.
We can say that perhaps the turmoil caused by that first rate hike is now coming to a close, and a less fearful environment is allowing potential acquirers to take advantage of the new, lower prices brought on by that hike and do some much needed acquisitions -- at least for a stock market that's been under incredible pressure for almost all of 2016.