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.

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John McIntyre
serves as a senior analyst for BPO Media. With more than 40 years of experience in the printing industry as an analyst, product developer, strategist, marketer, and researcher, he has covered the printing and supplies sectors for prominent market research firms such as Lyra Research, InfoTrends, and BIS Strategic Decisions, and served with major OEMs such as Samsung, NEC, and Diablo Systems/Xerox. McIntyre is the former managing editor of Lyra’s Hard Copy Supplies Journal and has conducted research and consulting engagements examining issues such as market and business strategies, product positioning, distribution channels, supplies marketing, and the impact of emerging technologies.
John McIntyre

John McIntyre

serves as a senior analyst for BPO Media. With more than 40 years of experience in the printing industry as an analyst, product developer, strategist, marketer, and researcher, he has covered the printing and supplies sectors for prominent market research firms such as Lyra Research, InfoTrends, and BIS Strategic Decisions, and served with major OEMs such as Samsung, NEC, and Diablo Systems/Xerox. McIntyre is the former managing editor of Lyra’s Hard Copy Supplies Journal and has conducted research and consulting engagements examining issues such as market and business strategies, product positioning, distribution channels, supplies marketing, and the impact of emerging technologies.