Is Staples’ acquisition of DEX opening a great big Pandora’s Box that will alter the dealer channel and imaging industry landscape forever?
(Editor’s note: This is the second in our two-part commentary and analysis of the DEX acquisition.)
No one saw this coming.
And when it did the press and analyst community covering the imaging industry found themselves dizzy with delight and salivating like rabid dogs over an opportunity to wax prolific over the biggest story of the year to date.
News travels fast in our industry, and many of us began hearing rumblings about this acquisition mid-afternoon on Friday, February 8. Dealers were sending us emails asking if we had heard anything within an hour after DEX employees were notified. By 4 p.m. we had received a copy of an internal email sent by Dan Doyle Jr. to DEX employees about the acquisition and confirmation from sources in the industry who had heard from DEX employees as well as prognostications from clients that matched some of our own.
As has already been reported, DEX will continue to operate as it has with current management. That may be true for now, but things have a funny habit of changing over time. Ever hear of Global Imaging Systems? Terms of the deal were not disclosed, but we suspect it was a sizable sum and took two trucks to deliver.
Reading between the lines””a space one could drive a truck through””this deal is a game changer, big-time disruptive, and a Pandora’s Box all in one. Staples now has a major presence throughout the Southeast. Guaranteed, this won’t be Staples last acquisition. What’s to stop it from acquiring dealerships of similar size or larger with sizable regional footprints in other parts of the country? We can think of dealers in the Midwest, West Coast, Southwest, and Northeast who are attractive acquisitions candidates whether they have any inclination of selling today or not.
The writing is on the wall for the independent dealer channel in big block letters. The big question is what impact will this have on smaller dealerships and the imaging industry as a whole? The impact the Big Box office stores had on the office products industry might yield a clue. They didn’t totally kill that industry but what’s left is a shell of what once was. A ripple effect could result in further consolidation of vendors and suppliers as well.
Lately, we’ve been pondering what the end game is for the private equity firms who have been acquiring dealers. What entity might have deep enough pockets to acquire their assets when they are ready to cash out? We now have a potential suitor whom nobody was expecting to show up at the door just a few weeks ago.
Indeed, this is a channel that could see a major transformation over the next decade thanks to what’s been unleashed by this Pandora’s Box of a deal. Still, this transformation will take time because the office technology dealer business model and its product and services mix is more complex than what was being sold in the office products channel when that channel was decimated by the Big Boxes in the 1990s. That doesn’t mean Staples won’t figure out how to navigate the complexities””distribution agreements and territorial agreements, etc. although some may disagree with that observation.
Frank’s commentary in the first installment of this series discussed the impact the agreement might have on OEM distribution. He’s not the only one asking this question. As one of my sources commented, “Everyone is salivating over the DEX acquisition but to me the real story is what are the OEM’s going to do as far as authorization. One reason this industry is healthy””decoded as dealers make a nice profit so they can provide great customer service””is there is a level of exclusivity. You can’t make money selling HP printers because they go through wholesale and retail so what will Konica/Sharp/Kyocera, whoever else DEX carried do for authorization now that Staples owns DEX? If they authorize them it could be the beginning of the end of a healthy industry although we all know there’s no way on God’s earth that Staples executes well and leverages DEX, but they can screw the pooch while they are trying.”
For now, there is no reason to panic, but we still can’t minimize the potential future impact of this acquisition no matter how hard we try.
Ultimately, there will be winners and losers in all corners of the imaging industry. Which corner will you find yourself Big Boxed into?
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