M&A Activity Connects Print With Other Services

by Raegen Pietrucha

Ever wonder why it came to pass that printer and copier providers started becoming managed service providers and vice versa? If so, you’re not alone. Perhaps it was when print devices became network-capable. Perhaps it was when the recession hit, and companies were forced to think of new businesses they could diversify into to survive. Perhaps it was something else altogether. Whatever the case may be, though, there’s no doubt that this crossover trend is real and here to stay.

Today’s players in the MPS space seem to take the phrase “Mind your own business” and throw it out the window, blurring the lines between formerly separate industries and in some instances blending them together entirely. And they’re accomplishing this most often and most swiftly through mergers and acquisitions; those deals that have taken place in the print and managed services industries thus far stand as the proof. But this new strategy of reshaping businesses and the space itself seeks not to divide, as some M&A activity has accomplished in the past, but combine and conquer — and not conquer the acquired, but conquer the ever-changing marketplace. Take, for instance, the perspective Chris Strammiello, vice president of worldwide marketing, Nuance Document Imaging Division, offered up with respect to his company’s acquisition of Equitrac: “The combination of (our) two forces would allow us to continue moving toward faster and more robust innovations in more interesting combinations than either company had the potential for before the acquisition.”

Two print OEMs who’ve done some acquiring of their own — Xerox and Konica Minolta — expressed comparable sentiments, emphasizing the importance of leveraging the combined talents of the acquiring and acquired. “Xerox’s strategy is to expand the market and provide the highest value to customers by acquiring market-leading firms, which we then manage as independent entities,” said Robert Corbishley, European/U.K. PR manager, Technology and Channels, Xerox Europe. “This approach allows the entity to continue to execute (its) success strategies while leveraging Xerox’s resources to accelerate value (and) growth both internally and externally.” A living, breathing example of this can be found in NewField IT, one of Xerox’s acquisitions.

Konica Minolta has a similar perspective with respect to one of its acquisitions, All Covered. “(All Covered) had a very robust U.S. presence — multiple cities across the United States — and it gave us immediate entry into the managed IT space,” said Sam Errigo, SVP at Konica Minolta Business Solutions U.S.A., Inc. “People are really happy with the fit (with) Konica Minolta and where we’re headed, and they certainly see the opportunity for growth and potentially career expansion due to the synergies that we drive between the businesses.”

Companies large and small in the services space — managed services and managed print services — are finding that “M&A” is no longer a term they need fear. The Imaging Channel spoke with companies on both sides of the deal to learn more about the different experiences with this increasingly common process and how businesses are truly uniting under a mutual goal.

The initial relationship

Although the end result — an acquisition — was the same in each of these cases, the relationship the companies had with each other prior to the deals was completely different. In the case of Nuance and Equitrac, the two companies had already grown quite familiar with each other, so the acquisition was in some ways just a formal extension of the pre-existing relationship. “Nuance has had a long-standing business and technology relationship with Equitrac to develop, market and support the cost recovery extender that passes information between Equitrac software and eCopy ShareScan,” Strammiello indicated. “In addition, the two companies shared many of the same reseller relationships and often collaborated on the same sales opportunities.”

Xerox and NewField IT had only recently established a partnership with each other when talks of acquisition began; a global agreement had been signed in December 2010 making Asset DB the key software for presales activity in Xerox’s XPS offering, said Robert Newry, co-founder of NewField IT. Happy with the new relationship, however, the acquisition proceeded shortly thereafter. “Asset DB was a core part of the technology offering, and it was a natural conversation for that to then extend to, ‘How would the whole relationship between NewField IT and Xerox be better if we were part of the same organization rather than separate?’” he said.

No prior relationship had been established between Konica Minolta and All Covered, who would soon find themselves united through acquisition. Oddly enough, though, All Covered was ready to sell, and Konica Minolta was looking to buy All Covered in particular. “(I) and the All Covered board had decided that, in order to get to the next evolution of the company, we needed to have new owners,” said Todd Croteau, president of All Covered. “At the same time, Konica Minolta had done their own vetting and selected All Covered as their top choice to acquire.” After a face-to-face meeting between the leadership teams, both companies felt confident that the match was a good one.

The evaluation

M&A is about more than just talking, though, of course. It’s about finding that perfect business fit, and that’s defined by the terms the purchasing company deems critical. So what made Equitrac, NewField IT and All Covered particularly attractive to Nuance, Xerox and Konica Minolta, respectively?

“Equitrac didn’t compete with products and solutions Nuance had; it immediately plugged in and augmented what we already offered,” Strammiello said. “There are times in an acquisition that force you to start going through redundancies and overlaps in the portfolio. In this acquisition, there was none of that; it just immediately extended our offerings in this space.”

“Two of the things that made us stand out to the marketplace — and certainly why Xerox wanted to sign recently a global agreement with us — … was our innovation … (and) that we were very agile in the way that we developed software,” Newry said.

“We were right in the sense that we were giving (Konica Minolta) the biggest geographical coverage in a single purchase,” Croteau said. But he and Errigo both emphasized the importance of the two companies’ matching business cultures as well — and no matter how rigid or loose a corporate climate might be at either business, companies generally have to match in this area for a merger or acquisition to flow smoothly. “It is culture first and making sure that they fit,” Errigo said.

After all this, it was time for the companies to get down to business. Serious M&A discussions to work out the details of the transaction can involve investment bankers (as was the case for All Covered), corporate financial advisers and lawyers (as was the case for NewField IT), industry consultants and more. Making sure everyone’s comfortable and confident about the deal is also important. “I think from the very first conversation, it’s all about building trust and authenticity with one another,” Croteau said. “It’s important that the owner is excited and on board. You can’t fake that.”

Then comes the hard due-diligence work to make sure there aren’t any liabilities waiting to spring up once the companies are united. Newry shed some light on his experience with the process: “That three months (of due diligence) was a very intense time of understanding what’s going on in the business, particularly on the financial side. … It’s like somebody coming into your house like a forensic scientist … and literally opening every cupboard — including your personal drawer — going through everything and saying, ‘What’s this? How did this get here? What’s all this about?’” Oddly enough, the Xerox due-diligence team did uncover something unusual during its process of discovery, Newry said: NewField IT is responsible for repairing the roof of a nearby church as needed. (Thankfully, he noted, the roof is in excellent condition.)

Finally, papers must be signed and money must change hands to make the deal official. While all valuations will be different, Errigo emphasized the importance of accurate and fair assessments, which will start everybody off on the right foot. “If you are in acquisition mode and truly believe in this particular initiative, and you want the biggest and the best in the marketplace, you have to be willing to have favorable terms for the owners,” he said.

The transition begins

While on paper, it all seems so easy to set forth and accomplish, the importance and difficulty of each step of the M&A process leading up to the signed and sealed deal cannot be underemphasized. “Nuance is very experienced as a company when it comes to acquisitions, but that doesn’t mean it gets any easier or that you get complacent about such a significant addition to your business,” Strammiello said. “It takes a lot of focus and energy to accomplish.” Perhaps the most challenging of the challenging steps, though, is the actual transformation itself that occurs once the deal is finalized, which — surprisingly enough — happens within the walls of both the acquirer and acquired. “The main concern is to make the process as seamless as possible,” Strammiello said. “From a management perspective, when we acquire a company, we look closely at the processes and organizational structures that they bring and try to adopt the ones that work best. This helps create a very positive culture for everyone, as the processes that work best and are most productive are used to create a culture that is better for all our employees.” Acquirers generally have HR staff members on-site at the newly acquired company to assist those employees with benefits registration and more — a process that alone can take two weeks. “The first 90 days, it’s all about the people,” Errigo said.

Again, because the compatibility of business cultures receives significant attention from the get-go, the actual transition process tends to go smoothly. “One of the great things about the Equitrac acquisition was that the two companies operated in very similar ways,” Strammiello said. “Because of this, it was a smooth cultural adjustment for both companies, and very little change was necessary.” Newry found that his experience with Xerox was comparable. “I did an MBA, and a big thing when you look at acquisitions is to look at why they’re successful and not successful, and one of the most — I think, for me — important bits is this cultural bit of how you allow the new organization to come into the acquiring organization and keep the spirit that made the business that was acquired attractive in the first place,” he said. “To Xerox’s great credit, … they understood, actually, what’s made NewField successful is that (it’s) a small, entrepreneurial company that’s growing very, very fast, and we need to preserve that culture, because that is why people came and joined NewField.”

After the employees have been taken care of, the business side of things is addressed, typically beginning with the financials, Errigo said. Once everything’s settled financially, other business systems and integrations are addressed. Finally, common offerings, new synergies and sales opportunities are reviewed, and generally, redundancies are eliminated.

The consequences

Ultimately, the M&A experience is different for everyone. As with anything else, there are pros and cons to it — and oddly enough, the pros and cons tend to be two sides of the same coin.

Take being part of a large corporation when you were once a small company, for example. Strammiello indicated that “the team at Equitrac (was) excited about being part of a bigger and more technology-laden corporation.” Errigo emphasized the capital Konica Minolta infuses into its acquisitions, which allows the businesses and employees that might not have been able to grow in the ways they’d hoped at their companies prior to the deal to move in new directions. “One of the biggest things that we will bring to the table is that upward mobility for learning and upward mobility from a career standpoint,” he said. Croteau echoed this: “(When) you go from a small, 30-person company to a 6,000-person company, there’s usually a lot in your favor.” 

But there can be some challenging consequences of being part of a larger conglomerate. Decision-making, for instance, changes drastically. “Because we are a large organization, the HR component is much more structured,” Errigo said. “You simply … just can’t run out and say, ‘I’m just going to go hire someone.’” Croteau noted that going from being a leader with all the decision-making power to only one player in a collaborative decision-making process could be a big adjustment for some. Along similar lines, Newry indicated that being heard at all by those now in the position to make the final call could prove to be more difficult than anticipated. “The only kind of challenges have been the natural ones that you would expect,” he said. “You come into a large organization, and they go, ‘Well, who are you?’”  The directions a company will grow post-acquisition can also change — though again, by the same token, new doors can open that never would’ve presented themselves prior to it as well. 

The people factor is always difficult to predict. While acquirers may have the best intentions, employees of acquired companies may not always be on board — which is tricky in this industry, since “in a services business, it’s not about the product; it’s about the people and the knowledge people have,” Croteau said. “That was one of the things that (Konica Minolta) made clear they wanted to retain, … (but) you don’t know how individuals are going to process change. You really can’t control that.” Both Konica Minolta and Xerox strategically chose to keep the existing management of their acquired companies, and both Croteau and Newry feel that’s made all the difference. And although they and their staff members had the opportunity to leave — and there certainly could’ve been a mass exodus — the overwhelming majority of employees and leadership have stayed on at All Covered and NewField IT. “That tells me that we’re not doing anything that makes them feel like it was a negative event,” Croteau said. 

And while it’s typical for normal business processes to slow down, comparatively speaking, because of the additional due diligence usually required by corporations, Errigo said, Croteau and Newry expressed the exact opposite happening post-acquisition — from both personal and company standpoints. “This past year has probably been one of the fastest years of my professional career because of the amount of activity we have going on around shifting the overall business from being solely device/box-centered to more of a services approach,” Croteau said. Newry echoed similarly from an overall business standpoint. “We’re growing very fast now,” he said. “We are doing lots of work within the Xerox community, but we’re also doing more of the other activities that we did before the acquisition, and we’re doing it in the same way — just faster now, and with the help of a big parent who can advise us.”

So overall, are staff members at acquired companies happy? It’s hard to speak for everyone, but Croteau seems content. “There’s a lot of promises that are generally made before, during and after an acquisition, and you always take them with a grain of salt,” Croteau said, “but I’ve found both … the U.S. team and the Japanese team to have nothing but the highest level of integrity in terms of follow-through, in terms of honoring commitments, in terms of collaboration and teamwork.” Newry appears to be satisfied with his decision to sell as well. “I constantly get other customers of mine coming up to me outside of the Xerox community saying, ‘Has Xerox lived up to their promise?’ and I give them an emphatic yes,” he said. “Overall, for me, it’s been an incredibly positive experience.”