Dear Mr. Buffett: Your firm -- Berkshire Hathaway -- placed a bid to acquire technology distributor Tech Data in 2019. Alas, private equity firm Apollo Global Management outbid you for the Tech Data asset.
Fast forward to present day. You're set to release your annual Berkshire Hathaway letter to shareholders on Saturday, February 22. No doubt, you'll express your usual optimism about America's ability to innovate. But here's the challenge: Berkshire Hathaway is sitting on $128 billion in cash. You've wisely avoided the temptation to overpay in the M&A game. But you can't sit on the M&A sidelines forever.
So how can you put some of that money to work ahead of your 90th birthday? Here's an idea: Turn your attention to southern California and acquire Ingram Micro.
Why? Because the IT distributor is well-run with a loyal, experienced executive team. Ingram is solidly profitable. Generates cash. And there are opportunities for growth. Plus, distributors typically don't have the wild valuation multiples that come with pure cloud and recurring revenue companies. (Surely, you already knew all of those business model benefits from your due diligence on Tech Data...)
U.S.-based Ingram Micro is currently owned by HNA Group -- a conglomerate in China. Ingram runs completely independently of HNA Group. But the Chinese conglomerate is struggling under a big debt load, particularly in the aviation industry. Amid all that debt, the Chinese government may wind up taking over HNA.
Frankly, all the speculation about HNA's ownership status creates unwarranted fear, uncertainty and doubt (FUD) about Ingram. Let me reiterate: Ingram continues to perform well, and has essentially firewalled its business from parent HNA.
Still, the U.S.-based distributor would be better served if HNA would sell the business. Doing so would allow Ingram to spend even more time serving partners and customers -- and spending less time answering redundant questions about its China-based parent from folks like me.
I look forward to your letter to Berkshire Hathaway shareholders on February 22. And the 2020 Berkshire Hathaway shareholder meeting on May 2. Sometime between now and then, please sit down with Charlie Munger and take a closer look at Ingram.
Make the buy. Bring Ingram (ownership, that is) home.
Best Wishes,
-jp
