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PA 2018 120by Patricia Ames

A little while back, I attended the outstanding Executive Connection Summit hosted by MWA Intelligence — a collegial gathering of the imaging channel’s thought leaders, subject matter experts and innovators. If you missed our coverage, Amy Weiss wrote a great recap of the event here. There were several excellent panels held during the event and one in particular got me thinking. For an hour, a panel of investors and channel executives including Dan Ruhl of private equity firm Oval Partners, Patrick Adesso and Jonathan Barr from Emerge Holdings LLC (a sister company of DEX Imaging,) Steve Etter from Greyrock Capital (an investor in MWA Intelligence,) and Rick Taylor of Konica Minolta fielded questions from MWA Intelligence’s Mike Stramaglio. What came out of it was an interesting juxtaposition of perspectives and opinions from both sides of the fence.

Stramaglio, Taylor, Etter, Ruhl, Adesso, Barr

Stramaglio, Taylor, Etter, Ruhl, Adesso, Barr

There’s still growth in print?

While some would question why anyone would invest in “an old business” like print, Ruhl sees good reason. “There is a lot of stability in this industry,” said Ruhl. “There are large customer bases and lots of business under contract. If you’re not making changes, your business is going to fall away in four, five years — that’s true — but it isn’t going to fall away tomorrow. So there’s a lot of stability in this space.”

And stability is good for growth.

Ruhl cites diverse needs from various vertical markets that will create demand for specialized services. “What a retailer needs is a lot different than what a law firm needs or what a hospital needs.” Fulfilling this wide-ranging spectrum of needs will be a source of great opportunity in the future, especially in the service-based economy we live in today. And given its current trajectory, it’s safe to assume that businesses will continue to become more and more specialized as time moves forward, which only means more growth opportunities for dealers.

What’s your approach?

“The fundamental core for the investment is to somehow aggregate that growth and establish a new level of growth,” said Stramaglio. Ultimately, investors want growth. And naturally, it was a common theme in the panel’s investment strategy. But where they differ is how they all grow.

Oval Partners seeks to invest in owners that want liquidity and growth, but don’t want to change their name or how they deliver service. With the right candidates aligned, Oval, together with a group of dealers, invested into a single entity, which Ruhl explained using a recent acquisition as an example: “FlexPrint, Laser Options, ProCopy and Canon IV have ownership in one entity with us, so everybody shares in the wins and losses. And as a result, the synergies, the purchasing leverage, the multiple enhancement, all of those things that occur in a partnership of all the business owners working together are shared.”

Meanwhile, the folks at Emerge take a different approach. “With companies we look at, we want to maximize profit on the things you're good at,” said Adesso. Emerge aims to optimize operational efficiency, mostly thanks to the technology and automation they can put into place. Barr brought up the intangibles: “Even though the revenue may stay somewhat stable or stagnant, we may see good margins, but better operating profits, better net income percentages, and we’ll see that grow. Those are the things you really want to look at in addition to the tangible assets as your mark” he said.

Greyrock’s Etter had this to add: “The days where your business is bought based on your MFP asset base, what brands you carry, what your churn is; those days are kind of over. Dealerships that don't metamorphosize over the next five years — that price multiple is going to go down. The companies that investors are going to focus on are the ones that have 10, 20, 30 percent of outside business other than MFPs — that's value added that has a higher margin. Then investors can say, ‘Well I can grow that to 50 percent of your business, why don't I buy and give you an earn-out?’’”

The people factor

Rick Taylor of Konica Minolta has personally been involved in over 75 acquisitions, so was uniquely suited to offer some perspective on the topic. For Taylor, success has been partly measured by the people that came along with the acquisitions. Many still work for Konica Minolta in some fashion; either running the original business acquired or running a bigger business inside Konica Minolta. Taylor said it's been a great strategy for them, but “you have to create an environment for that.”

Taylor also offered some advice: “There's no doubt in my mind that if you want to maximize your value as a dealership, get good at something else. Do you have managed print in your crosshairs? Are you looking at the IT services piece? Are you good at production print? What are you bringing to the table besides the core business?” Taylor stressed that those activities add money to the deal. He said they do two separate deals when they buy; they evaluate what the MFP business is worth and also what the other parts of the business are worth. So if you want to maximize the value of a dealership, diversification makes money.

Rick Taylor

Rick Taylor emphasizing the “people factor”

From the inside looking out

Patrick Adesso of Emerge sees some outside investment as a microcosm of going public. When outside money comes in, you are no longer working with an owner who wants to innovate and disrupt. Instead, you’re “beholden to a stranger who wants to make money.” Wearing his engineering hat, Adesso explained the fear and anxiety for those not sitting at the table. “When a stranger comes in and says ‘hey guys, I’m funding your company,’ as CIO, I’m scared. My engineers are scared.” On a P&L sheet, Adesso explained, his team is “hanging out there on a big red line.”

But that’s not to say all outside money is bad. Adesso was also “refreshed to hear that private equity was encouraging business owners to stay engaged because it’s the business owners that are essentially driving that innovation.” It’s really the best of both worlds, when you think about it. You get the benefits of outside money that can be used to optimize and grow the business without someone throwing a screw into the gears.

Taylor sees outside money as necessary, especially for fast growth, so long as it’s the “right” outside money. “You’re much better off having a friendly manufacturer ... because it’s hard to grow from outside dramatically without some help.” Where Adesso basically says outside money is good for growth if the investors let the operators who know what they’re doing do what they do, Taylor thinks that outside money with the additional expertise and support of a major manufacturer — the right “meddling,” essentially — can drive growth. And I think they’ve both got it right. Most of the time when you combine capital with expertise, you’ll almost certainly see growth and long-term success.

One of my favorite people is Steve Etter from Greyrock, who is not only a “money guy,” but also a professor at Berkeley. An innovative thinker, generous with his time and a mentor at heart, he deftly summed it all up by encouraging the audience to think about what the marketplace is going to look like in the future. He mentioned that middle market private equity is coming in at a rapid pace “because change is going to happen. And change will sort out the winners and the losers. And that means opportunity.”

Our Take

Investors still see value in the print industry, and are intrigued by the growth opportunity in the future. And that’s good news for the current crop of future looking dealers who want to grow their business and disrupt markets with capital intensive, innovative technology and services.

Patricia Ames is senior analyst for BPO Media, which publishes The Imaging Channel and Workflow magazines. As a market analyst and industry consultant, Ames has worked for prominent consulting firms including KPMG and has more than 10 years experience in the imaging industry covering technology and business sectors. Ames has lived and worked in the United States, Southeast Asia and Europe and enjoys being a part of a global industry and community. Follow her on Twitter at @OTGPublisher or contact her by email at This email address is being protected from spambots. You need JavaScript enabled to view it.