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Private Equity and the Print / Copy Channel

Opportunities could lead to a greater participation


The Print/Copy market is undergoing a great transformation. The automation and digitization of multiple administrative tasks is impacting the volume of office pages printed, creating at best a zero growth market place.

Therefore pressure has been high on its participants to achieve greater efficiency and find new revenue streams. These goals can be achieved by consolidating companies in the same segment or by adding new competencies like IT services via partnerships and mergers.

Another issue is that many companies in this market started in the 1990s, and are approaching a stage where their management needs to hand over to a new generation.

It has taken a long time for this to happen, as the business model is still solid. Contracts guarantee a high level of recurring revenues and one could say that this industry invented the subscription economy.

These circumstances create a scenario where Private Equity can introduce its savoir-faire in terms of restructuring and redeploying companies. In a mature industry, with little prospect of growth, but where the best companies still enjoy superior levels of profitability, money can be made by consolidating around best practice.

The most visible part of this market hitting the headlines is the manufacturers, where several large deals have been struck in the last two years. Lexmark, a US company was sold to Chinese interests at a significantly higher price than expected. Sharp was acquired by Foxconn, mainly for its screens and consumer electronics business, but to the surprise of many, the new owners have so far shown no sign of disposing of the print business – maybe because it is a profitable cash cow. The Xerox – Fuji deal hit the headlines because of its high profile investors and the corporate fight that is taking place. This only happens when there is money around.

On a smaller scale and only visible to people operating in the market, the same movement is happening at the distribution level, this is particularly prevalent all over Europe.

As a consultant group we operate internationally. We have examples of significant deals taking place in Germany, in the UK and in France to name the three biggest markets. Our partners in other countries than France regularly talk to Private Equity companies.
The UK, which tends to be heading the rest of Europe by eighteen to twenty-four months, has seen many movements in its channel.
Consolidation with a company like Apogee on an on-going acquisition trail with Danwood (Annual Revenue £105M), Balreed Digitec (£38M),Printware (£10M) and Xact Document Solutions (£8M). As we write, M2 announced the acquisition of Hobs On-Site.

Manufacturers buying channel partners
– Kyocera acquired Annodata(£45M) and MidshireCommunications (£8M) in 2017.
– Sharp acquired Midshire Business Systems (£18M) in 2017.
– Konica Minolta acquired Capture Imaging (£4M) in 2017.
and the list goes on.

If we consider France, there has been a series of acquisitions taking place in recent years. Just in the first four months of 2018, C-Pro (170 M€ revenues), a specialist in acquisitions, (its 47th!), announced a merger with Quadria (120 M€ revenues). Everteam, a Software company, took a controlling stake in Spigraph (100M€ revenues).

Manufacturers play a role in France as well, with Konica Minolta continuing on the acquisition trail, with OMR Dactyl (70M€ revenues) in 2017 and Numerial (2M€ revenues) in 2018. And likewise the list expands further.

There are quite a number of (200+) distribution companies in the range of 20 to 60 million revenues that operate in France and we think there is opportunity for Private Equity to operate in this market.

However, there are some hurdles. The UK shows that solid diligence must be executed to understand the real recurrent financial streams associated with the contract quality, the cost of delivering promised services and the effective sales coverage and account potential.

In conclusion we would see the print market as ripe for further consolidation. This could be a good sector for Private Equity to play a more active role, and enjoy the rewards of well-managed consolidation or acquisitions.

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This article was written on 05 Jun 2018, and is filled under Point of View.


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