HP’s Planned Apogee Acquisition Approved, Beefing Up Its Contractual Portfolio

On Oct. 23, the European Commission announced it had approved the acquisition of Apogee by HP,  finding limited overlap of the companies’ activities on the market for the supply of regular format printers, and that a number of strong players would continue in the market post-merger. The Commission also investigated “the relationship between the downstream market for the supply of managed print services and the upstream markets for the supply of large and regular format printers. The Commission concluded that the merged entity would not have the ability, or incentive, to shut out competing suppliers of these products as there are many alternative players at both levels.” Apogee is a U.K.-based office equipment dealer (OED) and Europe’s largest independent provider of print, outsourced services, and document and process technology according to HP, which announced the planned acquisition Aug. 1. The transaction values Apogee as of closing at £380M (approximately $490 million). Apogee was founded in 1993, has about1,000 employees, and its annual revenues were about $325 million. This acquisition is a classic “land grab” (or “page grab,” if you will) in the long tradition of copier/MFP OEMs buying successful and significant dealers in key geographic sectors. According to Printweek, in recent years, Apogee made a number of acquisitions of its own – including rival Danwood Group, Canon reseller Clarke Office Solutions and Glasgow-based office systems provider DirectBusiness Systems, as well as two German-based dealers in the last 12 months. HP’s rationale for the buyout is that it will build on HP’s printing strategy to enhance its A3 and A4 product portfolio, build differentiated solutions and tools to expand its managed print services (MPS) and invest in its direct and indirect go-to-market (GTM) capabilities. “The Apogee acquisition extends HP’s print leadership by boldly leveraging the industry shift to contractual sales as we aggressively pursue the A3 office market,” said imaging and print president Enrique Lores. The strategy includes the selective acquisition of office equipment dealers that provide HP access to increased profit pools from higher margin services. Apogee has relationships with Canon, Ricoh, Xerox and Konica Minolta. In a conference call announcing the acquisition, Aurelio Maruggi, general manager of HP´s A3 business, commented on the ongoing status of Apogee post-close. “In the case of Apogee, the model that we will implement will be a model that will be very separated from HP. It means that Apogee will continue to operate post-close as an independent subsidiary of HP, so they will be a fully owned subsidiary of HP, but they will be operating with an independent operating model. They will have their own management team in place.” We take this to mean that Apogee may likely continue relationships with other OEMs if those suppliers make sense for the successful operation of Apogee. Of course, taking on a partner the size of Apogee represents a possible direct conflict situation with existing HP A3 partners in the markets served. On the same call, Maruggi described the largely hands-off relationship HP expects to have with Apogee, stating “… we never expect Apogee will reach a point where they will sell 100 percent of their products of HP,” and described in great detail how HP expects to oversee at a distance but not significantly interfere with or manage Apogee directly. While we certainly accept that this hands-on/hands-off concept may be successfully executed by HP, industry history indicates that maintaining such a relationship over any extended period will be difficult; that eventually, HP’s influence could permeate into the acquired company’s behavior, especially if the acquired firm exhibits a strategy, revenue or profit mis-step along the way. This is not HP’s first acquisition of an MPS service provider:

• In 2011, HP acquired Salt Lake City-based Printelligent, a then market leader in managed print services (MPS). That purchase occurred seven years ago – the only revenue info we could find for Printelligent was undated, at $144 million
• In 2017, when HP closed the purchase of Samsung’s printer business, it also gained ownership of Brazil-based Simpress, the largest MPS provider in the country – reportedly controlling 25 percent of the MPS market there – which had been acquired by Samsung in 2017. Simpress is/was a major seller for Ricoh, and had approximate revenues at that time of about $115 million.
• Adding these three together, and only using the revenues of the acquired firms when they were bought, the combination adds up to about $600 million in direct HP MPS revenues. Of course, the Printelligent buyout was seven years ago – but the Simpress and Apogee components are new/recent. HP has never broken out the revenues from its direct MPS contracts but has often commented that the operation is growing; if we round off the combined revenues to, say, $600 million, that would be more than 3 percent of the revenues for HP’s printing unit, which is on a pace for about a $20 billion haul in FY ’18.

Of course, the Apogee acquisition is complementary in numerous ways, including providing an immediate and accessible in-house channel for the new HP A3 products throughout the U.K. and parts of Europe just as the Simpress acquisition gives HP the same opportunity in Brazil. These acquisitions give HP a direct MPS presence in major geographic areas – an advantage in bidding large, corporate-wide MPS deals with multinational companies, and, in the eventual brand-switchover process, the ability to target and take share (pages) away from OEMs such as Canon, Ricoh, etc. that were supplying the acquired firms. The Apogee acquisition could trigger a new round of OEMs seeking out and gobbling up major MPS players in strategically important regional markets, under the logical premise that it’s better to grab and guarantee retention of MPS contract pages rather than read about HP (or somebody else) buying them first and getting shut out. With a company such as Apogee, HP can certainly prospect additional select European dealer acquisitions and contract pages that it can fold under the Apogee organizational umbrella to broaden its direct footprint revenues. The bigger point is the broader and bigger HP’s direct MPS footprint, the better HP is able to compete with Xerox (and others) in the multinational enterprise MPS space.