by Amy Weiss, The Imaging Channel
Each year as we approach another turn of the calendar, we, like almost every other media outlet in existence, take a look back at the past year for a bit of a retrospective. Whether mainstream news media or industry-specific publications, it is traditional to examine the previous 11.5 months or so and take stock of where we are, where we’ve been and where we’re going. In this way — perhaps one of the only ways — 2016 is no exception.
It’s not uncommon to feel that a year has been extraordinary. Every year since the beginning of time has produced its share of monumental events that rock our worlds. Sometimes we look back later, shrug our shoulders and say, “oh yeah, I forgot that happened.” Sometimes though, even looking back over the course of months and years, those events feel every bit as earth-shattering as they did in the moment. The year 2016, I suspect, produced more than its share of the latter. But scattered among a couple of giant earthquakes that we’ll remember were a number of small tremors that we’ll look back on as “oh yeah” incidents — changes that are par for the course, and are indicative of a natural progression rather than a seismic shift in our foundations.
For the imaging channel, there are at least two and possibly three events that will qualify as earthquakes. The largest and most recent, of course, is HP’s September announcement that it would acquire Samsung’s printer business for $1.05 billion. Also included in that category is the April acquisition of Lexmark by a Chinese consortium, and we can probably throw in Xerox’s January announcement that it would split in two. Smaller tremors include a couple of dozen acquisitions and spinoffs by dealers, OEMs and others.
But let’s look back for a moment at the landscape as we entered 2016, since the way we came in has an effect on the way we’re going out, and see what we were dealing with.
The Changing Landscape
In a move that was emblematic of the way the industry had changed and was heading, in December 2015 the Managed Print Services Association (MPSA) changed its definition of managed print. The MPSA, founded to serve what was an emerging managed print market, had previously defined managed print as “The active management and optimization of document output devices and related business processes.” Last year it updated that definition to “The active management and optimization of business processes related to documents and information, including input and output devices.”
This acknowledgment of the increasing importance of the process versus the device sums up the direction the industry has been heading in for some time. As we have seen in everything from OEM financial numbers to reports from IDC and Gartner, office printing is not what it once was. It has changed, and all those involved in it, from OEM to dealer to supplies manufacturer, have had to adapt to survive.
We’ve seen this happen in a big way as dealers branch out into complementary and ancillary areas – document management, workflow technologies, managed IT services and more. In many cases, this is a natural progression. The dealer that has been offering MPS understands document infrastructure, is capable of providing assessments that can evolve into workflow, and has a good grasp on other solutions that would best suit the customer. Frequently, however, the expansion into these new areas is achieved by other means — merging or partnering, resulting in the M&A activity that has become prodigious.
Dealer Evolution: Shifting the Scenery
For dealers that have already progressed beyond selling the box, making competitive acquisitions is an important component to an expansion strategy — technologically, geographically and vertically into adjacent markets. For the dealer that has not been able to broaden its reach, merging or being acquired may be a way to achieve the same goals — or it may be a viable exit strategy. Regardless of the reasons, it is happening frequently, as exemplified at Ricoh’s annual dealer meeting in October where the results of a survey showed that 54 percent of dealers had participated in at least one acquisition, and almost half expected to pursue acquisition in the next 12 to 18 months.
Some of the dealers that have made a model out of growing through acquisition include such industry behemoths as DEX Imaging, the Florida-based business that has gone from a $1 million business to one that will meet its goal of $250 million in 2016, largely due to a midyear acquisition of Modular Document Solutions, a $30 million Sharp dealership with 15 locations. More recently, DEX also added Omega Office Systems, a $3 million Kyocera and Xerox dealership. The two acquisitions added new product lines — Sharp and Xerox — as well as a geographic expansion into the Carolinas.
Ohio-based Visual Edge Technology has built itself upon a company strategy based in acquisition. Launched as a wide-format business, Visual Edge has a dedicated acquisitions team “devoted to identifying and examining potential acquisitions candidates that add value to our portfolio of companies.” The firm has broadened its horizons through acquisition, noting “Ideal candidates are technology and office solution based companies that are leaders in their market delivering outstanding customer service and support.” Its calendar-year 2016 acquisitions have added office/document solutions and IT firms Image Source, Axion Business Technologies and Premier Business Products.
Other dealer acquisitions have involved private equity — a newer trend that has developed as progressive and diversified dealerships have made themselves more appealing to investors as technology powerhouses. A prime example of this is Minnesota-based Marco. Having already acquired 15 companies over three years, Marco was itself acquired by Norwest Equity Partners (NEP) in late 2015 for financial terms that, while undisclosed, seem to have allowed it to accelerate its acquisition spree, adding seven companies since the NEP purchase. Acquisition press releases billed Marco as a “leading technology services provider”; having diversified into such businesses as managed IT, cloud services and hosted voice, Marco offered a strong recurring revenue model that appealed to the investors.
The NEP/Marco deal broke a trail that was quickly followed by San-Francisco-based investment firm Oval Partners, which in January 2016 announced an investment in Arizona MPS firm FlexPrint. More recently, in September Oval Partners acquired Arizona-based Laser Options, which like FlexPrint bills itself as a managed print specialist, and in November acquired Arizona dealership ProCopy. Press materials report that “this managed print platform now represents the largest market share in the Southwest.”
OEMs and More: Reshaping the Terrain
A more long-term trend is that of OEMs scooping up independent dealers to grow market share geographically and vertically. Examples of this include Sharp’s February purchase of Texas-based Meridian Office Systems, creating Sharp Business Systems of Texas, as well as Global Imaging’s Texas expansion with Imagetek in March and ASI Business Solutions in October. Global itself, of course, was an acquisition for Xerox back in 2007, illustrating how far back the OEM acquisition trend goes.
Konica Minolta has also been historically active in the M&A arena, expanding its reach with service providers, most notably All Covered in 2011; the firm has completed more than 20 acquisitions since. Konica’s five 2016 expansions have included ECM providers, IT services providers, hybrid MPS and IT services providers, as well as traditional dealers. With these moves the firm continues the strategy it began several years ago, placing it into the more difficult-to-define category of M&A activity encompassing a number of large OEMs, technology and software companies and manufacturers.
As the office imaging industry expands its horizons, new companies appear in its ecosystem. Canadian enterprise information management firm OpenText is one of those that has made its presence well known on the imaging channel radar this year. A textbook example of a company that grows by acquisition, OpenText has reportedly made 53 acquisitions over the last 10 years with a total value of about $3 billion, allowing it to grow from a $500 million business in 2006 to one valued at $8.5 billion in 2016. OpenText made headlines in the office imaging world twice this year when it acquired several assets from HP Inc. shortly after that firm’s separation into two entities. In April, OpenText entered into an agreement to acquire several customer communications management assets from HP including TeamSite, MediaBin, Qfiniti, Explor, Aurasma and Optimost. Shortly following the completion of that deal, the next agreement was announced in which OpenText would complement its previous acquisitions with Exstream, Output Management, TeleForm and Liquid Office for customer communications management, process automation and document delivery solutions.
The most notable of OpenText’s 2016 acquisitions, however, was Dell’s enterprise content division, which included Documentum, for $1.6 billion — a move that helped Dell pay down some of the debt it had accrued when it made the biggest tech acquisition in history with EMC, announced in 2015 but finalized in mid-2016.
Other major M&A activity in 2016 involved hardware OEMs being acquired. The year began with the rocky relationship between Japan’s Sharp Electronics and Taiwan-based contract manufacturing giant Foxconn, which finally agreed to terms of a merger on March 30 after a prolonged period of waiting due to issues with Sharp’s fiscal standing, impacting how much Foxconn was willing to pay. In January, numerous reports valued Foxconn’s offer for Sharp at just over $5 billion, but the final deal, which completed in August, was for approximately $3.5 billion, giving Foxconn a 66 percent stake in Sharp.
April 2016 brought us the previously mentioned acquisition of Lexmark by a Chinese consortium led by Apex Technologies that falls into the “major earthquake” category — not so much because Lexmark was acquired, as rumors had circulated for some time that the company, whose financials have been volatile for a few years now, was on the market — but due to the buyer itself. News that a consortium led by a Chinese aftermarket manufacturer was the final bidder rocked some worlds, particularly those who had long followed the legal proceedings between Lexmark and North Carolina-based Static Control — a manufacturer of components, including chips, for remanufactured cartridges, which Lexmark sued in 2002. In 2015, Apex acquired Static Control, putting Static Control and Lexmark under the same ownership.
Also surprising to many was that Apex’s deal involved purchasing Lexmark intact, inclusive of its enterprise software unit, which many expected to be sold separately. Many felt it was likely that the new owners would spin off the software division post-sale, a prediction proved correct when the acquisition was completed on Nov. 29. The announcement included the news that the Enterprise Software group would be separated from Lexmark, rebranded to Kofax and put up for sale.
We have heard similar speculation around whether Sharp’s MFP business — an anomaly in a largely consumer-facing business, and one that has demonstrated more solid financial performance than the rest of the company — will stay intact. Speculation of this nature follows other OEMs doing the same. Xerox’s pending split, announced in January, will see the company broken into its document technology unit, which will retain the name Xerox, and its business services division, to be called Conduent. We classify this event in the “maybe a major earthquake” category simply because the split of an OEM is always big news. However, the split itself will really recreate the “old” Xerox as it existed prior to its troubled 2010 acquisition of business process outsourcing firm ACS. This is not to say that Xerox will be stuck in 2010, but rather that the hardware firm will look as it might have if left to evolve naturally.
Xerox’s split followed on the heels of HP’s announced split into HP Inc. and HP Enterprise, which recently celebrated their first year as independent companies. While HP Enterprise had been the higher-profile company during most of the year, HP Inc. took over the news when it announced in September that it would acquire Samsung’s printer business in a deal valued at $1.05 billion. The largest print acquisition in HP’s history took advantage of the separation, allowing it to become “nimble and focus on accelerating growth and reinventing industries,” in the words of President and CEO Dion Weisler.
With the acquisition, HP appears to be specifically seeking to leverage Samsung’s A3 technology. In outlining the firm’s strategic rationale for the acquisition, Weisler repeatedly noted the unique opportunity it presented to “accelerate our strategy to disrupt the $55 billion copier segment.” This segment, where HP is currently underrepresented compared to its position in the A4 market, is a logical adjacency, and the firm is supplementing its planned entry via Samsung product with its own PageWide inkjet-based A3 devices.
What will this announcement mean for the industry? For Canon, with whom HP has had a 30-year manufacturing relationship, it could mean quite a lot, although HP executives stated that the Canon relationship would not be disrupted by the acquisition. Weisler stated that Samsung printers that “overlap with our current laser portfolio with Canon will be transitioned to our HP brand. We expect our alliance with Canon will continue with an even stronger focus on creating value for our laser printer customers.”
So emphatic was HP in making this point during the initial announcement that it included a quote from Canon Chairman and CEO Fujio Mitarai in its press release, which appears to put Canon’s stamp of approval on the transaction, saying “This transaction will further evolve our collaboration and bring about growth for both of our companies.”
Skepticism remains rampant, however, and only time will tell what the deal, expected to close within the next year, means for Canon — or anyone. A survey of dealers conducted by BPO Media in October showed that while more than half of respondents thought it was too soon to say whether the move was a good one, half also said they were likely to consider becoming a dealer of HP’s new products — although HP’s history in the dealer channel is creating some skepticism. As with so many things, we will need to wait to gauge the impact fully (although you can read the full survey online at TheImagingChannel.com and gauge the temperature for yourself).
So there we have it — just a few of the major events of 2016, mostly centered around mergers and acquisitions, with a couple of splits and some changes to the general makeup of the dealer channel thrown in for good measure. Some of these events will resonate for years to come, while some will be forgotten by the time we wake up from our champagne hangover on New Year’s Day. Those less-memorable events are no less important, however; small tremors contribute to the overall change in the landscape in the long run just as significantly as huge, seismic shifts. The message for all involved remains the same as it has for years: stay aware of the changes and learn to adapt with them. Doing so is key to success and survival.