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In a major shift to the distribution landscape, Tech Data signed a definitive agreement to acquire the Technology Solutions business unit of Avnet Inc. for $2.4 billion. Under the terms of the deal, expected to close in the first half of 2017, Avnet will receive shares in Tech Data representing a 7 percent stake of the distributor.

When consummated, the deal will create a distributor that will collectively serve more than 125,000 solution providers worldwide, said Tech Data CEO Robert Dukowsky. Tech Data also said the combined entity is expected to be able to reduce overall costs by $100 million

The degree to which Tech Data and Avnet serve the same solution providers is difficult to determine. For years, the line between broad-line distributors, such as Tech Data, and value distributors, such as the distribution arm of Avnet, has been blurring.

“The line between broad-line and value distributors got blurred a long time ago,” said Dukowsky, who noted that Tech Data already generates more than $8 billion in annual revenue in value distribution business

Tech Data and Avnet have been reselling each other’s services for years. The combined entity will employ more than 14,000 people focused on service, both traditional resellers and emerging born-of-the-cloud solution models that have created business models based largely on recurring revenue, Dukowsky said. However, many solution providers are employing multiple business models, spanning everything from reselling hardware and providing managed services to cloud integration services.

A distributor merger of this magnitude begs the question what is driving consolidation activity across the channel.

There are more technology products and services moving through the channel than ever, Dukowsky said. The number of resellers in the channel may be changing, but for every reseller that exits the channel, there is a new born-of-the-cloud services provider to replace them, he added.

Diane Krakora, CEO of PartnerPath, an IT channel consulting firm, said it’s clear that more volume is being consolidated into the hands of few players.

“I think we’ll see more of these types of deals involving distributors,” said Krakora.

The challenge, said Krakora, is that in an on-demand model, both solution providers and distributors need deeper pockets to be able to offer higher-margin services.

“Avnet has already proven there’s a need for these services in the channel,” said Krakora. “I just hope that doesn’t get lost in the Costco of the channel that Tech Data is.”

Mike Vizard has covered IT for more than 25 years, and has edited or contributed to a number of tech publications, including InfoWorld, CRN and eWEEK. He currently blogs daily for IT Business Edge and contributes to CIOinsight, Channel Insider and Baseline.