Konica Minolta Expands Its Service Offerings in the US Through All Covered Acquisition
OEMs have invested billions of dollars over the past few years to acquire assets so they can market more high-margin services along with their traditional hardware, software, and consumables products. Hewlett-Packard and Xerox have been the industry's biggest spenders in this M&A game. In 2008, HP paid approximately $13.9 billion for Electronic Data Services (EDS) and more recently Xerox struck a $6.4 billion deal for Affiliated Computer Services (ACS).
While the billion-dollar acquisitions grab all the headlines, hardware manufacturers have signed many smaller deals to gain access to new services markets. Because these investments are smaller, they can go unnoticed. Regardless, the implications of smaller deals are enormous as more and more OEMs adjust their business models and move from transactional sales to becoming managed service providers. The recent acquisition of All Covered by Konica Minolta Business Solutions U.S.A. (Konica Minolta) is one example of a small deal that may have a big impact on the digital imaging marketplace.
Headquartered in Redwood City, Calif., All Covered provides a range of managed IT services to small- and medium-sized businesses (SMBs). All Covered's services include server and desktop management along with on-site networking support and consulting. Cloud computing is all the rage these days, and the firm also provides an assortment of cloud-based services such as backup and disaster recovery.
According to Kevin Kern, Konica Minolta's senior vice president of marketing, his company has been interested in offering more managed IT services for awhile. "We acquired the copier dealer Hughes-Calihan a couple of years ago and we found the managed services they offered were complementary to Konica Minolta's break-fix services." Since that time, Mr. Kern says Konica Minolta has been on the lookout for other service organizations to acquire. A Konica Minolta dealer since 1993, Hughes-Calihan provides various managed services for integrated computer networks and multi-media presentation technologies, and they also lease equipment. "We want to expand our IT services, " says Mr. Kern, "and we found All Covered was a perfect fit with what we're doing."
We can expect Konica Minolta to make similar acquisitions. Mr. Kern indicated that there is "tons of room for organic growth" and the firm also plans to grow by acquisition in the MSP space. A report on the CRN website (www.crn.com), which features news and information related to the channel and solution providers, indicated that Konica Minolta is looking to grow its services business by 100 percent over the next 12 to 18 months.
All Covered itself has been growing like wildfire, and that is expected to continue as Konica Minolta looks to expand its services business. All Covered's M&A program is fairly aggressive. Its website features a section I found interesting with information regarding how companies interested in selling out can reach All Covered for an acquisition assessment. There are also plenty of press releases reporting various buyouts from the past few years. CRN reports the company has completed 16 buyouts in the past three years, and in 2010 it had revenue in the neighborhood of $60 million. Last year, the firm indicated it would acquire up to 50 IT VARs and MSPs. Currently, All Covered has 22 offices spread across the United States.
Details of the All Covered acquisition were not made public. It was disclosed, however that the firm will be run as an independent business and retain its name. The company's management and workforce of approximately 350 will remain largely intact. Because Konica Minolta offered a limited number of services, there was not much overlap in the each firm's labor force.
Industry analysts are bullish about the deal. In a prepared statement, Konica Minolta quoted IDC's Keith Kmetz, vice president of IDC hardcopy solutions programs as saying, "As the printing and imaging industry continues the transformation toward a more services-led model, it is imperative for market players to integrate more IT-related services as part of a comprehensive product/services package." Mr. Kmetz praised Konica Minolta as being forward thinking and says the deal gives it "instant legitimacy in providing customers with a wide range of the necessary IT services/support offerings, along with an already well-established roster of printing and imaging solutions."
Wirth Consulting's Terry Wirth is equally upbeat about the acquisition and says it will greatly benefit Konica Minolta customers. On his www.wirthconsulting.org website, Mr. Wirth wrote, "Konica Minolta's acquisition of All-Covered is a win-win for all parties involved, especially customers and end users." He opined, "In the old scenario, a customer may require both Konica Minolta and an IT supplier in order to provide critical, total network services. This means that any solutions-development had to be coordinated between three entities. In the new All-Covered scenario, solutions-development need only be coordinated between two entities, significantly streamlining the process."
In general, I agree with the analysts. In addition to the above positive comments, All Covered should also allow Konica Minolta to further penetrate the fragmented SMB market, which is huge and difficult for OEMs to service properly. As a skeptic, however, there is a risk of upsetting the channel. Dealers that are already offering managed services in the SMB market may not look too favorably on Konica Minolta moving more into the space. I can anticipate there may be some difficulties for the company managing its channel. Mr. Kern paints a rosier picture. He says that for many smaller dealers, the All Covered acquisition gives them the infrastructure they didn't have so they offer more services. "The small- to mid-sized dealers really like the idea of offering managed services but they lacked the infrastructure." I'm sure Mr. Kern is right. It sounds like Konica Minolta has already considered any conflicts and is accentuating the positive to its channel partners.
Posted on 02/08/2011