M&AThese days, the only thing surprising about mergers and acquisitions (M&A) is when a week goes by without the announcement of one. At GreatAmerica we’ve been monitoring industry acquisitions for many years, and overall M&A activity in the office technology market has never been more intense. From private equity investments and venture capital firms adding to their portfolios, to strategic mergers between dealers, or acquisition of dealers by OEMs as a way to grow both geographically and in market share, M&A activity in the channel shows no sign of slowing down.

Two active players in the M&A market are Marco and the Flex Technology Group. When we decided to take a deeper dive into what a successful M&A strategy looks like, we took the opportunity to speak to experts from these companies — Marco’s CEO Jeff Gau, Flex Technology Group’s CEO Frank Gaspari and Dan Ruhl, a partner at Oval Partners, which is the investor group behind Flex.

Marco, which boasts more than 40 acquisitions, was itself acquired in 2015 by private equity firm Norwest Equity Partners. A primarily Midwestern operation until very recently, Marco made its biggest acquisition to date in November 2018 with Phillips Office Solutions, an East-Coast-based operation with 10 offices throughout Pennsylvania and Maryland. Phillips added 140 employees and 4,000 clients in a new region to Marco’s portfolio.

Flex Technology Group is headquartered in Mesa, Arizona, has more than 1,000 employees and services more than 30,000 customers nationally. Oval Partners works together with Flex Technology Group and describes itself as a “multi-family office investment firm designed to provide liquidity, growth, capital and acquisition funding to founders of growing businesses across North America.” Ideal targets for the Flex Technology Group initiatives are software and services businesses. They employ a hybrid M&A solution that combines acquired companies under the Flex Technology Group umbrella but also allows owners to reinvest and remain active in the business and own a piece of the entire organization.

Obviously, these two very different strategies come with very different models, different philosophies and different approaches to M&A. What advice do these leaders in the field have to offer?

Acquirers place value on the nature of the contracts dealers have in place with their customers. The more secure the contracts, the more certainty of the future revenue stream.

Seeking targets

When it comes to acquisition targets, Marco’s Gau says that there are a few different types of businesses his company might seek, all of which reflect the fact that Marco identifies as an IT company that also happens to be in the copier business. “Our strategy is to buy copier companies and bring our IT services to the market. Or we might buy a small IT company and bring them to a different level,” says Gau.

On the list of Gau’s potential targets is the traditional copier dealer that wants to expand its service offerings but doesn’t have the resources. “It’s very common for us to purchase an old-school dealer that needs to go to the next level but doesn’t want to make the investment or have the skill set,” he says. “The current owners may not want to take the risk on their ability to run a managed services company, or they have invested into managed IT but can’t keep up with those services. They can bring somebody like Marco in to acquire them and it creates new opportunities. They’re in the IT business relatively quickly.” He noted that the managed services model is attractive to the traditional copier dealer because they already have contracted customers. “When you buy one of those you grow it with your augmented services, which in our case would be managed IT, hosted voice, production print or MPS. Some of these services expand on the relationship with an existing customer in a cross-selling type of arrangement. It’s amazing to me how few copier companies actually do MPS. They’ll talk about MPS, but they won’t have much of a process. There’s some opportunity with the traditional copier companies, and I’m seeing the valuations be pretty decent — probably as high as I’ve seen since we’ve been acquiring.”

Acquirers place value on the nature of the contracts dealers have in place with their customers. The more secure the contracts, the more certainty of the future revenue stream and the more they are willing to pay. This puts the dealers and their acquirers in a better position competitively. 

Another type of acquisition Gau lists is a traditional copier company that has managed to initiate a decent-sized managed practice internally, but it’s not their core competency. They have their own help desk or NOC. They have maybe 50 customers — it’s 10 percent or more of their revenue. They’re operating, but it’s still at a deficit perhaps and they might be in a position where they’d like to get some chips off the table, recognizing they’re going to have to continue to invest. “I will pay a premium for that if it’s in reasonably good shape,” says Gau.

A third type, he says, is the copier company that’s outsourcing to somebody like Collabrance, All Covered or Continuum. If their sales reps know how to sell it, they’ve got some traction. “I wouldn’t put the same value on that as I would somebody executing on their own, but it shows me they have the ability to sell in the marketplace,” says Gau.

This focus on IT is critical to the organic side of Marco’s growth, says Gau. “Often the organic growth is almost all in the IT division and the acquired growth is very often in the copier division,” he says, noting that of the firm’s overall revenues, “Half will be acquired, and the other half will be organic. Three-fourths of the organic growth will come from managed services or IT.”

Organic growth is something the Flex Technology Group also values in its targets, says Gaspari. “Momentum and organic sales growth — that, for us, is the most important thing. We can work together on best practices to improve margins, etc., but if a company is flat or declining and they haven’t changed the culture to turn it into a growing company, that’s very difficult. If I were any company out there looking to increase my value, I’d be investing in sales and growth.

“Anytime anybody looks at our business down the road, they’re going to look at all the acquisitions, but they’re going to peel behind them too,” he continues. “They’re going to look at whether the company has been growing year over year. If we bring on companies that have been declining in the past or have no momentum, it drags all of the other businesses that we brought in down. It is the most important factor, in our opinion.”

What else is a factor? What goes into this unique strategy?

“We cast a pretty broad net as it relates to potential acquisition candidates,” says Gaspari. “The most important thing for us is the people involved in the business and whether we determine they would be good partners down the road.”

The Flex Technology Group, says Gaspari, differs from the common acquisition approach in that it does not conduct traditional buyouts. “What’s different about us is that the owner reinvests,” he explains. “We’re really bringing them in as a real equity partner in the parent company. We’re not looking for companies that are for sale. We are directly going out and contacting them, and a company that isn’t technically for sale is actually usually a better fit for us than a company that is for sale, where the owners are exiting the business. We are looking for owners that are passionate about reinventing themselves.”

Ruhl of Oval Partners outlines the steps for identifying new targets and determining whether to bring them on board. It’s somewhat unique to the Flex Technology Group, but with principles that can certainly be applied to more general best practices.

“If an owner is interested in talking, a team of us will fly out, meet with them and see their operation,” he says. If, at that point, there is merit in pursuing the transaction, “we’ll get an NDA signed, and we’ll ask for 15 to 20 items of information to help us value the business. What we like to do is get to a valuation and a letter of intent (LOI) fairly quickly in the process — right at the beginning, so if we’re way off on value or there’s some type of discrepancy in how they see a deal coming together, we don’t spend time with lawyers and we don’t spend time with brokers and due diligence and all of that.”

If the firms get to the LOI stage and remain in agreement, Ruhl says there is a 60-day exclusive period during which they do financial and legal due diligence, and also customer due diligence — having a third party do a survey of the top customers from a list and getting a feel for how the customers view the company. Post-LOI is much more detailed financial due diligence done by a third party to ensure the numbers are accurate, and business due diligence that is about “getting to know the company and how it’s structured, and how we believe we’re going to integrate it as much as we can before we close,” says Ruhl.

There are two levels of due diligence, says Ruhl. The first is for the purposes of getting to a valuation in the LOI piece, and includes at least two years of audited financials, year-to-date performance, budget and CAPEX. “Then we look at business by segment — hardware sales versus service revenue, how much of the business is managed print, document management, etc.,” he says. “On the sales side is sales by customer for the top 20 customers, and gross profit by customer to see how much customer concentration there is.”

After the process is complete, if it all works out, there is the signing and closing of the transaction. “We sign, close, the money flows to the seller, and the seller reinvests back into our organization — all on the same day, and we move forward with them,” he explains.

Done correctly, a good acquisition smoothly transitions more than just the employees.

Making the transition

Integrating company culture can be one of the most difficult parts of the M&A process and needs to be handled with care. Company culture is a topic of frequent discussion in the industry, and it seems the “people factor” is pretty important to Gau and Gaspari as well. The first impression, says Gau, is critical, because often the employees find out about the acquisition the first day they meet their new owners. “I’ve been on both sides of the table and I know what that’s like,” he says. “I personally will attend each employee orientation session. We’ll bring in a team of people from sales, service, human resources, warehousing and financing.” People are nervous, says Gau, so it’s a meeting that needs to be navigated carefully. “But we’re pretty good at retention and whether it’s accounting, leasing or dispatching, if they are a good employee for their company, odds are they’re going to be a good employee for our company and we’re going to try to retain them.”

It’s not just the employees who need to be transitioned. Customers and vendors must be made aware of the change as well. “Done correctly, a good acquisition smoothly transitions more than just the employees,” says Gau. “There can be a lot of different providers and vendors, not only leasing and manufacturing partners. I’m talking about insurance and lawn mowing services, and all the things that take place that you forget about. So our integration team meets every single week.”

A lot of hours are dedicated to the transition, especially ones that take a long time — some more than a year. But Gau says it’s essential, and that any company can be successfully integrated. “The hardest thing to fix is if the leaders stay on the team, which we welcome them to do, but they don’t recognize that things are going to be different. I think the hardest part for us with culture is if the owner takes on the attitude that the new investors aren’t doing things right, and they know how to do it better. Then our culture takes a hit and so I’m very mindful of that.”

Company owners have a big impact on culture during the Flex Technology group’s transition process as well because of that company’s unique business model. “We get the companies together quarterly, and because the ownership is all at the same level, we work on best practices,” explains Gaspari. “If one company’s doing something that can help another one, it just naturally happens because it grows the value for the whole entity. It’s just a natural that all of the owners are in it together.”

And of course, back-end systems and processes, as well as physical locations, need to be transitioned along with the people. “For the IT portion of the business, we’ve been fortunate so far in that all of our companies have been on the same system,” says Gaspari. “If they weren’t, we would have to either purchase middleware or we would have to integrate them onto the same system.” But even if the systems are the same, the way things are processed within those systems may differ. “There’s a lot of work for the financial side of the organization to make sure that all of the companies are reporting monthly the same way. That piece of it is a more cognitive piece,” he says.

Meanwhile, from an HR standpoint, payroll and benefits are also consolidated at the holding company level. “We don’t have different people on different payroll systems with different benefits plans in each of these entities. That’s all consolidated as soon as it can be,” he says.

A lack of strong earnings is not a deal breaker. “We may see that their contracted services look really good and we may
put higher value on that.”

Smoothing the final path

Of course, with all the moving parts in a fluctuating market, there are some challenges for these players as well. There are potential missed steps in due diligence that turn up issues down the line, as well as other problems that can’t be caught no matter how thorough the investigation. “If you miss a large customer loss, or something like that happens right after close, that’s shame on us,” says Ruhl. “But if you find out later there are internal issues with some employees that don’t get along — you can’t due diligence all of that. Once you have the new organization in, you have all the good things and all the problems of a company. If you have anybody or any company in the mix that’s divisive and trying to cause trouble then you’re in a tough position, because it’s a real partnership.”

“Sometimes people have too much inventory or people that are underperforming,” says Gau of the post-acquisition process. “Let’s say you’ve got six sales reps — somebody’s going to be the best and somebody’s going to be the worst; that’s a fact on every team. So sometimes it just pays to work together for a while and say, ‘I think we got something here. We just need to do a better job of training and mentoring.’ We’ll try it for a while. We don’t have any blinders on.”

What suggestions does Gau have for a company that might be seeking acquisition? In addition to cleaning up inventories, he recommends taking a good look at your facilities, as most acquiring companies won’t want those to be a consideration. “We’re not in the real estate business, we’re in the IT business,” he says. “I’ve had it happen where somebody owes a bunch of money on a building, so I would have to lease the building for a specific number, and I’m not going to do the deal.  I’m not going to overpay for a building.”

As far as core business, if you’re strictly in the copier business, he says it’s best to stay that way.  “Either don’t invest in managed services and get your house in order on your core business, or, if you’re going to develop managed IT services as a value creator, then you’d better be all-in because you can’t build a managed IT service company in 12 to 18 months.” Gau also notes that a lack of strong earnings is not a deal breaker. “We may see that their contracted services look really good and we may put higher value on that. If they have a good bundle of contracts and there’s 48 to 60-month leases, that’s one of the highest value creators they have.”

Gau has the unique perspective of having been on the other side of the acquisition process and frequently reflects back on that as he sits on the other side of the table. “I felt we were good stewards of our responsibility when we got acquired,” he says. “I like the company that owns us, and that works really, really well. Also, I had to recognize that we’re going to change too. I have a boss and we’ve got a board of directors now, we’ve got governance now. It’s the attitude that you go into it with. If you want to work toward getting things done and collaborate, then it’s going to work.”


As Gau, Gaspari and Ruhl have illustrated, collaboration is key when it comes to successfully navigating the waters of mergers and acquisitions. Whether the M&A activity is initiated as part of a desire to expand geographic reach, service offerings or simply to combine resources, the requirements are similar. From the initial legwork to the final integration of people and services, it is a journey that requires all parties to work together to reach the desired result and function as a cohesive unit that serves its customers as well — and ideally better — than it did before.

Jennie Fisher is Senior Vice President and General Manager, Office Equipment Group, and is responsible for sales, marketing, operations, and financial performance for this business unit. She has been involved in lease financing since 1989. Prior to joining GreatAmerica in 1993, Fisher worked for GE Capital. She earned her MBA from the University of Iowa in May 2004. During her tenure with GreatAmerica, Fisher has held various leadership positions, including team leader east coast, internal auditor, sales director of office equipment, vice president of strategic marketing, and vice of president sales for the Office Equipment Group. She serves on the board of directors for the MPSA and the ITEX Advisory Board. She previously served on the board of directors for Big Brothers, Big Sisters and the board for Junior Achievement of Eastern Iowa.