Don’t Read Too Much Into Ingram PE Investment

August 26, 2019

Potential $4 billion infusion is more about parent company debt than strategy

Channelnomics Staff

An announcement could come as early as this week that Ingram Micro will get a fresh cash infusion of $4 billion from an investment group led by Hong Kong-based RRJ Capital. The speculation is leading many to wonder what it means for the global distributor. Chances are nothing much, as this is probably more about HNA’s position in its home market than changing Ingram’s strategic direction.

The Lowdown: Over the weekend, Bloomberg reported based on sources close to the negotiation that RRJ – a firm operated by former Goldman Sachs partner Richard Ong – will pour $4 billion into the distributor via convertible bonds issued by Ingram’s parent company, HNA Group. The deal will reportedly give RRJ a 50% stake in the distributor.

The Details: If a deal goes through – and neither HNA nor Ingram Micro is commenting – it will result in a significant rebalancing of the distributor’s ownership. According to Bloomberg, the RJJ investment pool is two-thirds North American and European investors; the balance comes from Middle East and Asian investors. None of the investors in the RRJ pool are in China. Bloomberg reports RRJ has steadily increased its shares of Ingram over the past year. RRJ is one of the major buyers of HNA assets; the China-based conglomerate began selling off assets more than a year ago to pay off heavy debts held by Chinese banks.

The Impact: The impact on Ingram Micro’s strategic direction or operations is likely nil. If a deal comes to pass, most of the money will go back to HNA for settlement of China debts. Ingram will likely maintain its current course of investing in geographic expansion, building cloud-based services, and shoring up its core technology distribution businesses.

Background: HNA Group – a China-based conglomerate that owns assets ranging from airlines to hotels to shipping companies – bought Ingram Micro in 2016 for $6 billion. In the intervening years, HNA has fallen on hard times as debt obligations forced it to divest of some of its prized assets. Ingram has remained largely unaffected by the HNA sell-offs. Based on the valuation, the Ingram business is healthy and expanding since the HNA acquisition.

Channelnomics Point of View: Ingram vendors and partners shouldn’t read too much into the potential RJJ investment. As noted above, most of the money will likely go toward paying off HNA debts. As with most investments and leveraged buyouts, the money rarely leads to strategic change. Ingram is a strong distributor with expanding practices – in areas such as the cloud, Internet of Things, and security – that are meeting current and future market needs.

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