Exhibits 1.21-1.22
In 2019, we began tracking dealers with revenues of $10 million or greater, calling it the “$10 Million-Plus Club.” From 2017 through 2018, we focused on dealers with revenues of $7.5 million and higher, and before that, dealers with revenues of $5 million and higher. Our reason for tracking dealers in these revenue ranges over the years was that we believed those dealers possessed the financial resources to invest in new products and services to grow the business and expand through acquisition. As the average dealer revenue has grown to more than $15 million since 2015, the time arrived to make the club even more exclusive, particularly as it has become more challenging for dealers with less than $10 million in revenue to grow their businesses in the same way as their more well-funded peers. That’s not to say they can’t, but that $10 million threshold is more realistic for investing in and growing a business.
Another reason for this decision is that smaller dealers with revenues less than $10 million are prime targets for acquisition. As acquisition activity increases and becomes more competitive, we’ve been expecting to see buyers be more discriminating, setting their sights set on dealerships above $5 million in yearly revenues and with an existing MIF to accelerate the acquirer’s growth targets. However, that’s not what’s been happening as of late. Most of the acquisitions of office technology dealerships during the past few years are smaller dealers with revenues under $5 million. This year’s Survey is a prime example with the average revenue of the acquired companies being a modest $1.7 million. Despite that, we remain steadfast in our belief that dealerships with revenues under $10 million and no succession plan in place will continue to be prime targets for acquirers.
The percentage of dealers in this now-not-so-exclusive $10 Million-Plus Club has been growing and somewhat surprisingly continued to grow even during the pandemic. That changed this year with a higher number of Survey respondents. Exhibit 1.21 identifies the percentage of our dealer universe reporting revenues greater than $10 million by manufacturer, while Exhibit 1.22 indicates the percentage and average revenue of dealers in the $10 Million-Plus Club by manufacturer. Canon, Kyocera, Ricoh, and Sharp all saw the percentage of dealers with revenues of $10 million or higher grow over the previous year, while the percentage of Konica Minolta and Toshiba dealers with revenues over $10 million remained the same. This year, only 31% of dealers (141) reported revenues of $10 million or more. Two years ago, 45% (172 dealers) reported revenue of over $10 million, while last year, that percentage dropped to 33% (125 dealers). It’s safe to say that the $10 Million-Plus Club just became more exclusive. We don’t believe the decline in the percentage of dealers reporting revenues of more than $10 million is the result of acquisitions. Not that many dealers in those revenue ranges have been acquired to explain the difference. More than likely, it’s fewer dealers in the $10–$20 million revenue range participating in our Survey and a greater number with revenues of less than $10 million.
Konica Minolta ($83.89 million), Ricoh ($61.4 million), and Canon ($42.35 million) dealers continue to rank in the top three, respectively, in terms of the highest average revenue (Exhibit 1.22). The average revenue for dealers representing the Big Six in the $10 Million-Plus Club is $53.27 million, up from $43.5 million last year, and from $32.4 million two years ago. What this tells us is that the bigger dealers keep getting bigger and despite challenges from COVID-19 and the supply chain, their dominance continues unimpeded.
